3 GROUP 20 CORPORATE GOVERNANCE 35 BOARD OF DIRECTORS' REPORT 69 RISK MANAGEMENT 136 FINANCIAL STATEMENTS 258 CALENDAR AND CONTACTS
The uncertainty brought on by the excessive debt levels of the public sector continued to frustrate the capital markets throughout 2012. Interest rates fell as central banks eased their monetary policy. Short-term interest rates on US and German government bonds turned negative, the popularity of credit-risk investments increased, and the corporate bond interest rates fell even below companies' dividend yields.
Even though the irresponsible amassing of debt by the public sector is the main reason behind Europe’s problems, the financial sector was burdened with increased regulation and the imposition of a banking tax in many countries, as well as other new tax levies enforced on it. Tax activists at the EU level continued with preparations for a financial transaction tax, despite the fact that it is commonly accepted that the tax will restrict economic growth and hinder job creation.
Finnish business of the Danish insurance company Tryg. This transaction is expected to be closed in the spring of 2013.
Sweden and the Baltics from the summer of 2013. If P&C’s holding in Topdanmark increased to 25.4 per cent of all shares, excluding the shares that are held by Topdanmark itself.
Life Insurance Premiums Grew By 15 Per Cent In 2012, the premium income of Mandatum Life grew by 15 per cent to EUR 977 million, which meant that it almost reached the company’s record figures of 2010. This was an extremely good achievement considering the prevailing market situation. To a large extent, the growth in premium income can be attributed to the smooth sales cooperation with Danske Bank.
Group’s investment results were excellent in 2012, with both equities and the bond portfolio yielding good returns.
insurance and banking operations that cover all of the Nordic countries and which has a leading market position in all of the business areas. This creates a strong foundation for successful operations also in 2013.
All the B shares are held by Kaleva Mutual Insurance Company. B shares can be converted into A shares at the request of the holder.
Sampo Group's business areas are P&C insurance and life insurance under If and Mandatum Life brands, respectively. The
The parent company Sampo plc’s A shares are listed on the
If P&C Insurance – Security and Stability If's mission is to offer insurance solutions that provide customers security and stability in their business operations, housing and daily life. The company's vision is to be the leading property and casualty insurance company in the Nordic and Baltic regions with the most satisfied customers, leading edge insurance expertise and superior profitability.
• Nordic Business Platform – If will create competitive advantage through economies of scale and know-how transfer through an integrated Nordic and Baltic platform
In Finland, Mandatum Life relies on three sales channels: in-house corporate sales teams, wealth management focusing on high-networth individuals, and Danske Bank’s network.
That is why the company believes that voluntary corporate pension schemes will play an increasingly important role in complementing the statutory earnings-related pension scheme in the future. As far as the corporate sales channel is concerned, even greater emphasis will be placed on meeting the investmentrelated needs of customers. In addition, companies are believed to gain significant value by covering their employees’ life and health risks through voluntary insurance policies.
investment result, risk result and expense result. The company’s strategy in investment activities is to maintain adequate solvency in relation to market risks in the balance sheet, which makes it possible to strive for a long-term return that is higher than the return requirement on with-profit technical provisions. In expense and risk result Mandatum Life seeks growth both through higher operational efficiency and volume growth. The company’s financial target is to produce an RoE of at least 17.5 per cent.
Denmark, the Baltic countries and Russia. Danish insurance company Topdanmark A/S, in which If P&C Insurance is the largest owner with more than 20 per cent of the shares, is accounted for as an associated company in the P&C insurance segment.
Mandatum Life Mandatum Life, with operations in Finland and the Baltic countries, is responsible for Sampo Group's life insurance operations and in addition offers asset management services under an insurance wrapper.
The past year was marked by the still challenging financial environment, impacted by the sovereign debt and banking crisis in the eurozone. The insurance industry is now in a period where it is adapting to this new environment with low interest rates and hence low return on investments, where the results must be achieved in underwriting. This is an approach that is in line with the way If has been working for several years through its prudent investment policy and profit-oriented underwriting approach.
The number of household and corporate customers continued to increase and more business was conducted with each customer, resulting in increased business volumes and more ancillary business.
The new regulatory requirements on capital, liquidity and funding, following the global financial and sovereign debt crises, imply a cost for all banks that will be reflected in business models and other changes in the global banking market for years to come.
During 2012, Nordea further adapted to the new conditions by following the New Normal plan implemented the previous year.
Nordea increased capitalisation, prolonged funding further and increased liquidity to sustainable levels. During the year, capital efficiency increased and cost development remained flat. The processes to reduce the number of employees were also finalised according to plan.
Nordea will safeguard a continued high rating, enabling strong liquidity and funding position since it is vital to ensure the right products and services at the right price to each customer.
1,000 branch office locations and is among the ten largest universal banks in Europe in terms of total market capitalisation.
Despite the turmoil caused by the debt crisis in the eurozone, 2012 proved, in many ways, a good year for Mandatum Life. After a difficult year in 2011, the company recorded an excellent investment result for 2012. Premiums written also developed favourably compared to the previous year.
For core businesses, premiums written rose close to the recordhigh level of 2010, clearly exceeding that of 2011. The increase in premiums written was primarily due to the strongly increased sales volumes of the Danske Bank distribution channel, which reached an all-time high in the history of the distribution cooperation. Other sales channels also managed to increase the premiums written related to unit-linked contracts, and what was particularly positive about these channels was that redemptions related to unit-linked contracts remained at a substantially lower level than the year before. As a result of these, the unit-linked technical provisions rose to the highest level ever in the company’s history. The assets and customer numbers of the company’s own wealth management also experienced solid growth despite the challenging market and economic situation.
The pension insurance market was marked by heavy debate on the tax treatment of individual pension insurance policies and PS
contracts. The outcome was to raise the minimum retirement age for new individual pension insurance policies and PS contracts concluded after 1 January 2013 to be in line with the maximum retirement age under the statutory pension system, which is currently 68 years. In Mandatum Life’s view, these changes will substantially weaken demand, which is why the company decided to discontinue all sales of individual pension insurance policies, after having previously ceased selling those products to private customers. The tax changes will, however, not eliminate the need for customers to make preparations for their retirement; to meet this need, the company will adjust both its product and service offering and its sales organisation to better reflect the new market situation in the beginning of 2013. In terms of wealth management and other savings solutions, this will entail a broader range of services and investment targets. Solutions related to life and health risks, along with commitment and rewarding services, will also play a greater role in the overall offering.
The average number of Sampo Group’s employees in 2012 amounted to 6,823 (6,874). In geographical terms Finland had 32 per cent of the personnel, Sweden 27 per cent and Norway 22 per cent. The share of Baltic countries, Denmark, Russia and other countries was 19 per cent.
• Emphasizing ‘employeeship’ – If Performance Management: Targeting employees’ own will, contribution and responsibility, being the key drivers of better performance and increased competence, in turn leading to high motivation and great job satisfaction.
• Continued investments in competence development and innovation: Driving innovation processes across the company and developing If leaders, employees and specialists. During 2012 If employees utilized the large If Academy offering to build on their competence by taking 39,254 e-courses and participating 9,385 times in physical and virtual seminars. The strategic competence focus areas of underwriting and internet were subject for additional investments, as outlined below.
Competence Development Targeting Internet and Underwriting If is improving its internet offerings to meet the shift in customer behavior resulting from the increased use of the internet. This requires increased cross functional cooperation between product development, product management, marketing, sales and distribution, IT etc. To facilitate this increased cooperation, If
Development Program in which 100 specialists and leaders from all of the Nordic countries attends a 9day high-quality training.
Positive Development of Health Figure The number of FTE:s has decreased marginally and personnel turnover has gone up slightly during 2012 as a result of targeted efficiency actions within some areas of the organization.
Sick leave percentages for the different countries lie between 0.75 per cent and 3.26 per cent with the exception of Norway.
Norway has a higher sick leave figure, but is also developing positively and is now at 4.84 per cent compared to 5,24 per cent in 2010.
Remuneration Highlights and Regulatory Impact During 2012, If further refined its compensation governance in light of later years increased regulation and governance requirements and the increased focus on compliance of remuneration policies and compensation mechanisms. Work also centered on improving communication on individual compensation and the total reward framework in order to support recruitment and create a positive effect on retention.
In early 2012 a new information system, ML People, was implemented for competence development aiming to systemize the processes and management of competence development. As a part of the new system, an e-learning platform was also introduced to Mandatum Life employees. Almost all sales and customer service personnel have successfully completed the
APV1 investment adviser diploma and managers in wealth management and corporate sales the APV2 investment adviser diploma. Also a new training curriculum has been introduced for building the competencies in both Money and Life business areas.
Pension Services Ltd. All employees of Mandatum Life also belong to a group pension plan taken by the company.
The development focus of effective and high quality HR services has been in both development of HR information systems and in the support of employee wellbeing. The Sick leave percentage has decreased and is annually 3.3 per cent. The systematic development work has decreased the costs related to low employee wellbeing and Mandatum Life returns to the lowest category in employee pension insurance premiums for 2013.
Mandatum Life was listed 21st among the Greatest Places to Work in Finland in 2012. Employee satisfaction has remained on a high level in an unstable market conditions: in a survey conducted in late 2012 the total Trust Index of Mandatum Life employees was 77 per cent and 83 per cent stated that ’Taking everything into account, I would say this is a great place to work’.
CORPORATE RESPONSIBILITY Corporate responsibility is an inherent component of insurance activities and it is high on the agenda both in If P&C, the largest P&C insurer in the Nordic and Baltic countries, and Mandatum Life, the leading life insurer in Finland and the Baltic countries. It is also demonstrated by the fact that Sampo Group companies are significant taxpayers in their main markets. Sampo Group companies pay an estimated total of over EUR 250 million in corporate income taxes for 2012.
Corporate Responsibility in If P&C If has an underlying commitment to promote a society in which everyone is able to live safely and securely. Along with the police, rescue services, judiciary and other public authorities, the insurance companies play a key role in creating a safe and secure society. In 2012 alone, If processed close to one and half million insurance claims ranging from private clients injured in road accidents to companies whose own production, or their suppliers', had been halted, as was the case when Hurricane Sandy hit the
As the leading insurance company in the Nordic region, If's corporate responsibility goes beyond its business operations. If applies its unique knowledge of risk management to help build a safe environment. Its principal objective is to constantly act in a manner that satisfies or exceeds the ethical, legal and commercial requirements placed upon the business.
As an example, If has been deeply committed to environmental concerns for many years and all company activities are governed by a strict environmental policy. The essence of this policy is that the company will always endeavour to find the most environmentally viable solution for If, its clients, suppliers and partners.
• The company initiated an ambitious, internal environmental programme some years ago. In 2012, If conducted a major project aimed at reducing energy consumption in its larger office buildings.
Award, a new environmental award whose purpose is to recognise the environmental efforts of Sweden's office tenants.
If has an extensive programme for supporting safety initiatives in a broad sense. If's Säkerhetsnål and Eldsjälspriset scholarships are awarded once a year to a young person working to support other young people in vulnerable positions, or an organisation or private individual who is devoted to a cause and whose activities contribute to a better society. In Norway, If works in nationwide partnerships with the Norwegian Directorate for Civil Protection and Emergency Planning and the Norwegian Fire Protection
Association. In Finland, If makes six-year-old school children more visible to traffic on the way to school by providing them with high visibility yellow caps. If's road safety researchers regularly analyse the company's comprehensive vehicle damage statistics to ensure that the information can be used to improve safety on the roads.
Mandatum Life provides security to its self-employed customers and their families and safeguards the future of the company in the event of the sudden illness, disability or death of the entrepreneur. The statutory cover provides basic security, which is often not enough, however. The small amount of statutory pension might reduce the entrepreneur’s income level during retirement to even below the income threshold. Therefore it is important for entrepreneurs to have the possibility to voluntarily supplement their pension. This also gives entrepreneurs better opportunities to focus on running their companies and to cope in the face of life and health risks.
22 BOARD OF DIRECTORS 25 Board of Directors' Duties 26 Election and Terms of Office of Board Members 26 BOARD-APPOINTED COMMITTEES 26 Audit Committee 27 Nomination and Compensation Committee 28 GROUP EXECUTIVE COMMITTEE 31 Group Executive Committee's Duties 32 GROUP CEO AND PRESIDENT
CORPORATE GOVERNANCE STATEMENT Sampo complies in full with the Finnish Corporate Governance
Governance Statement on its website in fulfillment of the requirement referred to in the Finnish Securities Markets Act (746/
Nordea Bank AB (publ), Chairman of the Board; UPM-Kymmene Corporation, Chairman of the Board; Finnish Business and Policy Forum EVA, Board Member; The Research Institute of the Finnish Economy ETLA, Board
Member; Swedish School of Economics Hanken, Chairman of the Board; The Mannerheim Foundation, Board Member
◦ Wahlroos holds 11,861,383 Sampo plc shares directly or through a controlled company.
Wärtsilä Corporation, Vice Chairman of the Board; Stora Enso Oyj, Board Member; The Finnish Pension Alliance TELA, Vice Chairman of the Board; Securities Market Association, Chairman of the Association's
◦ Vuoria holds 35,017 Sampo plc shares directly or through a controlled company.
Group between the AGMs. Sampo's Board of Directors is responsible for the management of the company in compliance with the law, the regulations of the authorities, Sampo's Articles of
The following persons served on Sampo plc's Board of Directors in 2012: Sampo Group's Annual Report 2012
◦ Member of the Board of Directors of Sampo plc since 9 April 2003.
◦ Grate Axén holds 2,251 Sampo plc shares directly or through a controlled company.
◦ Member of the Board of Directors of Sampo plc since 7 April 2009.
◦ Mattila holds 4,089 Sampo plc shares directly or through a controlled company.
◦ Member of the Board of Directors of Sampo plc since 15 April 2008.
◦ Member of the Board of Directors of Sampo plc since 5 April 2006.
◦ Pekkarinen holds 8,315 Sampo plc shares directly or through a controlled company.
Umkomaas Lignin (Pty) Ltd, Norway, Chairman of the Board; Federation of Norwegian Industries (Norsk Industri),
Norway, Member of the Assembly; Inspiria Science Center, Norway, Board Member
◦ Member of the Board of Directors of Sampo plc since 12 April 2012.
◦ Sørlie holds 1,039 Sampo plc shares directly or through a controlled company.
◦ Taxell holds 8,924 Sampo plc shares directly or through a controlled company.
The Board of Directors decides on Sampo Group's business strategy, approves the budget and the principles governing the
In addition, the Board regularly evaluates its own activities and cooperation with the management.
Executive, and releases them from their duties. The Board also decides on the terms and conditions of their employment and on other compensation. In addition, the Board confirms the Group's staff planning targets and monitors their fulfillment, determines the grounds for the Group's compensation system and decides on other far-reaching matters concerning the staff.
The Board convened 9 times in 2012. The average attendance of
BOARD-APPOINTED COMMITTEES The Board may appoint committees, executive committees and other permanent or fixed-term bodies for duties assigned by the
Board. The Board confirms the Charter of Sampo's committees and Group Executive Committee, and also the guidelines and authorizations given to other bodies appointed by the Board.
Committee is responsible for evaluating the auditor’s and auditing firm's independence and particularly their provision of related services to Sampo Group, and for preparing proposals to the
The Committee also monitors the efficiency of the Group's internal control, internal audit and risk management systems, and monitors the Group's risks and the quality and scope of risk management. In addition, the Committee approves internal audit’s annual action plan, monitors internal audit's reporting, monitors the fulfillment of risk policies, the use of limits and the development of profit in various business areas, oversees the preparation of and compliance with risk management policies and other guidelines within the scope of Audit Committee’s activities, and reviews the description of the main features of the internal control and risk management systems pertaining to the financial reporting process, which is included in the company's Corporate
Group companies, and executes any other duties that may be bestowed upon it by the Board.
Executive, the member of the Group Executive Committee responsible for risk control and Group Chief Risk Officer.
Taxell (until 12 April 2012) and Anne Brunila (as of 12 April 2012), and the other members were Adine Grate Axén, Jukka
Group CEO, Group CFO, CFO of If P&C, Group Chief Risk Officer and Group Chief Audit Executive.
Committee, the composition of the Group MD Committee, and, to the extent required, makes surveys of potential successors to aforementioned positions. The Committee also prepares proposals for the Board on the principles by which the members of the Group Executive Committee are to be compensated and their remuneration.
Board on issues relating to the development of corporate governance and confirming the criteria and processes used for the Board's self-evaluation.
In 2012, the Nomination and Compensation Committee comprised the Chairman of the Board (who acted as the Committee's
Chairman of the Board; Nokia Corporation, Board Member; Confederation of Finnish Industries EK, Vice Chairman of the
◦ Stadigh holds 258,108 Sampo plc shares directly or through controlled companies.
GROUP EXECUTIVE COMMITTEE The Board of Directors has appointed the Sampo Group
The following persons served on the Group Executive Committee in 2012: Sampo Group's Annual Report 2012
If P&C Insurance Holding Ltd, Sweden, Board Member; Mandatum Life Insurance Company Limited, Board Member
Swedish Insurance Federation, Sweden, Board Member; Swedish Insurance Employer Association (FAO), Board Member; AcadeMedia Aktiebolag, Sweden, Board Member; If P&C Insurance Ltd, Sweden, Chairman of the Board; If P&C Insurance Company Ltd, Finland, Chairman of the Board
◦ Martinsen holds 22,496 Sampo plc shares directly or through controlled companies.
If P&C Insurance AS, Baltic, Chairman of the Board; CJSC If Insurance, Russia, Board Member; Mandatum Life Insurance Baltic SE, Board Member
Member of Sampo Group Executive Committee from 2005 to November 2012.
GROUP CEO AND PRESIDENT The company has a Managing Director who is simultaneously
The Managing Director of the company and the Group CEO and
Compensation of the Members of the Board of Directors According to Sampo's Articles of Association, the Annual General
Chairman, EUR 100,000 to the Vice Chairman, and EUR 80,000 to the other members of the Board, with approximately 50 per cent of each Board member's fee being paid, after taxes and corresponding charges, in Sampo A shares and the rest in cash.
Members of the Board of Directors have not received any other benefits, nor do they participate in Sampo's long-term incentive programs.
Compensation of the Managing Director and Other Executives The Board of Directors decides on the terms of employment and remuneration of the Group CEO and other executives on the
Sampo Group Executive Committee, on the basis of a proposal by the Nomination and Compensation Committee. However, the
Nomination and Compensation Committee decides, upon authorization by the Board of Directors, on the salaries of the members of the Group Executive Committee, excluding the Group
Members of the Group Executive Committee are also participating in the long-term incentive programs 2009 I and 2011 I for Sampo's management. The terms of the incentive programs are available on Sampo's website.
Based on his employment contract, the Group CEO will be paid a fixed monthly salary and a yearly short-term incentive, which may be no more than an amount corresponding to nine months' fixed salary. The Group CEO is also participating in the long-term incentive programs 2009 I and 2011 I for Sampo's management.
EUR 204,340 in short-term incentive and EUR 1,393,000 in longterm incentive, together totaling EUR 2,454,227.
Group Executive Committee is deferred as required in the regulatory framework applicable to each Group company. After the deferral period and on the basis of a risk adjustment review, the Board of Directors decides whether the deferred variable compensations shall be paid out in full, partly or omitted in whole.
INTERNAL AUDIT Sampo's Internal Audit is a function independent of business operations, which evaluates the sufficiency and effectiveness of the internal control system and the quality with which tasks are performed in Sampo Group. The Internal Audit reports to the
Group CEO. The Internal Audit has been organized to correspond with the business organisation.
The Audit Committee of Sampo's Board of Directors annually approves the Internal Audit's operating plan. The Internal Audit reports on the audits performed to the Group CEO and the Audit
Committee. Company-specific audit observations are reported to the respective companies' governing bodies and management.
In its auditing work, the Internal Audit complies with, in addition to the Internal Audit Charter approved by Sampo's Board of
Directors, the international professional standards approved by the IIA (the Institute of Internal Auditors).
INSIDER ADMINISTRATION Given the nature of Sampo's business areas, especially bearing in mind their extensive investment activities, Sampo's Board of
Sampo Group's Guidelines for Insiders are stricter than the abovementioned norms on matters that concern the Group Executive
Committee, other corporate executives and other specifically named persons, as these persons must obtain a separate written permission in advance for each share related securities transaction they make with the securities of Sampo plc or any of
The total fees paid to the auditor for services rendered and invoiced were EUR 2,311,431. In addition, Ernst & Young Oy were paid fees for non-audit services rendered and invoiced totaling EUR 544,737.
63 CALCULATION OF THE KEY FIGURES 63 Group Key Figures 65 Property & Casualty Insurance Key Figures 66 Life Insurance Key Figures 67 Per Share Key Figures
SAMPO GROUP IN 2012 Sampo Group reported good results for 2012 in all of its businesses despite the challenging economic environment. P&C
Group’s profit before taxes for 2012 rose to EUR 1,616 million
(1,228). Total comprehensive income for the period, taking changes in the market value of assets into account, increased to
The Board proposes to the Annual General Meeting to be held on 18 April 2013 a dividend of EUR 1.35 per share (1.20) and an authorization to repurchase a maximum of 50 million
Profit before taxes in the P&C insurance segment increased 35 per cent to EUR 858 million (636). Combined ratio was exceptionally strong both for the full year 2012 and the fourth quarter, 89.3 per cent (92.0) and 88.8 per cent (90.2), respectively.
Return on equity was 36.2 per cent (12.4) and fair value reserve increased to EUR 364 million (139).
EUR 653 million (534). Nordea’s RoE was 11.6 per cent (10.6) and core Tier 1 ratio (excluding transition rules) rose to 13.1 per cent
Sampo Group’s total investment assets at the end of 2012 amounted to EUR 18.2 billion (17.6), of which 79 per cent was invested in fixed income instruments (80), 16 per cent in equities
EUR 10,113 million (8,920). Equity was strengthened mainly by the comprehensive result for the year of EUR 1.855 million and reduced by the EUR 672 million of dividends paid.
Sampo Group’s own funds exceeded the minimum solvency requirements at the end of 2012 by EUR 3,358 million (1,892) and the conglomerate solvency ratio stood at 170.4 per cent (138.6).
The average EUR-SEK exchange rate used for income statement items is 8.7040 and the year-end exchange rate used for balance sheet items is 8.5820.
If P&C is the leading property and casualty insurance group in the Nordic region, with insurance operations that also encompass the Baltic countries and Russia. The P&C insurance group’s parent company, If P&C Insurance Holding Ltd, is located in Sweden, and the If subsidiaries and branches provide insurance solutions and services in Finland, Sweden, Norway, Denmark, the Baltic countries and Russia. If’s operations are divided into four business areas: Private, Commercial, Industrial and Baltic. Danish insurance company Topdanmark is If's associated company.
Profit before taxes for P&C insurance increased by 35 per cent to
EUR 858 million (636) in 2012 as a result of an excellent operating profitability during the year. Net income from investments also improved significantly compared to previous year, as the comparison period was burdened with impairment losses of EUR
152 million related to equity assets. In 2012 the impairment losses amounted to EUR 24 million.
The excellent outcome was supported by better than average weather conditions particularly during the first half of the year.
Finland, despite the effect of lowering the discount rate for annuities in the third quarter.
Swedish operations remained on a previous year’s level in 2012 on both combined and risk ratios, despite the significant single large claims in business area Industrial in the second quarter of 2012. Denmark was burdened by worse than average large claims outcome.
Large claims in total ended up EUR 50 million higher than average for the full year 2012. Large claims development was favourable in business area Commercial but EUR 59 million worse than normalized in the business area Industrial. Discount rate for annuities (real rate) in Sweden increased to 0.18 percent at the end of 2012 from 0.07 per cent at the end of September 2012, which had a minor positive impact on the result.
All business areas had strong growth in 2012. Gross written premiums increased 6.4 per cent to EUR 4,698 million (4,414).
Cost ratio improved from the previous year to 23.3 per cent (23.5)
and expense ratio to 17.1 (17.3). Adjusted for currency the nominal costs increased 4.2 per cent.
P&C amounted to EUR 11.7 billion (11.2). Net income from investments increased to EUR 359 million (298). Investment return mark-to-market for the year 2012 was 6.1 per cent (1.8). Duration for interest bearing assets was 1.1 year (1.2) and average maturity 2.3 years (2.5). Fixed income running yield as at 31 December 2012 was 3.6 per cent (4.1).
If P&C’s solvency ratio as at 31 December 2012 (solvency capital in relation to net written premiums) was 77 per cent (72). Despite the dividend paid to Sampo plc in the fourth quarter, solvency capital increased from the previous year to EUR 3,485 million
(3,080). Reserve ratios were 161 per cent (167) of net written premiums and 219 per cent (237) of claims paid.
Russia through a subsidiary that focuses on Nordic clients operating in the country.
signed an agreement to acquire the P&C insurance business of the Finnish branch of Tryg A/S for a consideration of EUR 15 million. Tryg’s Finnish branch had a premium income of EUR 84 million in 2011, approximately 155,000 customers and a market share of approximately two per cent. The acquisition is expected to have a minor positive impact on If P&C’s result in medium term.
The transaction is subject to approval by the authorities and is expected to be completed during the spring of 2013.
In November 2012 If P&C and Nordea signed a partnership agreement whereby Nordea will market If P&C’s products in
Associated Company Topdanmark If P&C holds 22.9 per cent of the total number of shares and 25.4 per cent of all shares excluding the shares held by the company itself of Topdanmark which is listed in the Copenhagen Stock
Exchange. Topdanmark is a P&C insurance company with a small exposure to life insurance in Denmark. In 2011 Topdanmark’s gross written premiums amounted to approx. EUR 1.6 billion. The company has a market share of 18 per cent in P&C insurance and 3 per cent in life insurance in Denmark.
Topdanmark has a profit distribution policy according which it does not pay dividends but buys back its own shares in the market. As If P&C has not participated in the buybacks, its holding as a percentage of all Topdanmark shares has grown. In May 2011 the holding exceeded 20 per cent and If P&C started to account for Topdanmark as an associated company.
The average acquisition price is DKK 780 and the book value in
On 31 December 2012 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.2 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 7.77 per share. The closing price as at 31 December 2012 was EUR 7.24.
Nordea’s Board of Directors proposes to the AGM 2013 a dividend of EUR 0.34 per share (0.26), corresponding to a payout ratio of 44 per cent of net profit in line with the dividend policy. If the AGM approves the Board’s dividend proposal, Sampo plc will receive a dividend of EUR 293 million from Nordea in March 2013.
The following text is based on Nordea’s full year 2012 result release published on 30 January 2013.
Lending volumes increased 3 per cent and corporate lending margins were higher, while deposit margins have decreased from 2011. Net fee and commission income increased 5 per cent and net result from items at fair value increased by 18 per cent compared to last year. Income under the equity method was EUR
11.1 billion, or 7 per cent, compared to the previous quarter. The core tier 1 ratio including transition rules under Basel II was 10.2 per cent. The capital base was EUR 27.3 billion, the tier 1 capital was EUR 24.0 billion and the core tier 1 capital was EUR 22.0 billion.
Nordea Group was 127 per cent at the end of the fourth quarter.
The dividend policy remains unchanged. Excess capital is expected to be distributed to shareholders.
For more information on Nordea Bank Ab and its result release for 2012, see www.nordea.com.
Change in liabilities for inv. and ins. contracts -642 348 -
as at 31 December 2012. The solvency ratio increased to 27.7 per cent (20.9). Total technical reserves of Mandatum Life Group were
In the Finnish operations, the total return for policyholders on with-profit technical provisions in 2012 was 2.25–4.5 per cent, depending on the class of insurance, in total corresponding to roughly EUR 150 million. Customer bonuses varying from 0 to 1.25 per cent were included in the total return. The value of the unitlinked customers’ savings rose on average 8 per cent.
Risk result amounted to EUR 19 million (25) in 2012. Expense result for Mandatum Life Group decreased in 2012 to EUR 6 million (10). Especially the rise of sales commissions, due to good sales performance, and bonuses burdened the result. Mandatum
Life does not defer acquisition costs, which burdens the result for the sales year.
Mandatum Life Group’s premium income on own account surged to EUR 977 million (849). Increase in the sales through the Danske
Sampo plc owns and controls its subsidiaries engaged in P&C and life insurance. In addition Sampo plc held on 31 December 2012 approximately 21.2 per cent of the share capital of Nordea, the largest bank in the Nordic countries. Nordea is an associated company to Sampo plc.
Sampo plc’s holding in Nordea Bank was booked in the consolidated balance sheet at EUR 6.7 billion. The market value of the holding was EUR 6.2 billion at 31 December 2012. In addition the assets on Sampo plc’s balance sheet included holdings in subsidiaries for EUR 2.4 billion (2.4).
CHANGES IN GROUP STRUCTURE Sampo Group’s structure remained unchanged during 2012. The minor segment level changes are reported in chapter “Business areas in 2012”.
April 2012. The Annual General Meeting adopted the financial accounts for 2011 and discharged the Board of Directors and the
The number of members of the Board was increased with one to nine members. The following members were re-elected to the
At its organizational meeting, the Board elected Björn Wahlroos as Chairman and Matti Vuoria as Vice Chairman. The following members were elected to the Nomination and Compensation
Taxell are independent of the company and its major shareholders. In addition, Björn Wahlroos became independent of the company as of 1 July 2012.
Annual General Meeting: the Chairman of the Board will be paid
EUR 160,000 per year, the Vice Chairman EUR 100,000 per year and the other members EUR 80,000 per year. In addition potential statutory social and pension costs incurring to non-Finnish members according to applicable national legislations will be borne by Sampo plc. After deduction of taxes and similar payments, approximately 50 per cent of the Board members'
Governance in 2012 Sampo Group complies in full with the Finnish Corporate
Governance Code published by the Securities Market Association on 15 June 2010.
(Remuneration) of the Corporate Governance Code. The report will be available at www.sampo.com/remuneration.
Corporate Responsibility in 2012 As a listed company, Sampo plc has the responsibility of acting in the best interests of its shareholders, in compliance with legislation and in accordance with sound business practices.
As the leading insurance company in the Nordic region, If's social responsibility goes beyond its business operations. If applies its unique knowledge of risk management to help build a safe environment. Its principal objective is to constantly act in a manner that satisfies or exceeds the ethical, legal and commercial requirements placed upon the business.
• The company initiated an ambitious, internal environmental program some years ago. In 2012, If conducted a major project aimed at reducing energy consumption in its larger office buildings.
The If Environmental Report 2011 published in March 2012 available at www.sampo.com/materials/annual-reports/2011.
Mandatum Life’s corporate responsibility is based on the cornerstones of its operations: increasing and securing the financial welfare of its customers and safeguarding against risks.
Personnel in 2012 The number of full-time equivalent staff increased to 6,820 employees (6,810) as at 31 December 2012. In P&C insurance, the number of staff increased in Finland and Sweden and decreased in Norway, Denmark, the Baltic countries and Russia. In life insurance, the number of staff increased both in Finland and the
insurance, 8 per cent in life insurance and 1 per cent in the
Group’s parent company Sampo plc. Geographically, 32 per cent worked in Finland, 27 per cent in Sweden, 22 per cent in Norway, 8 per cent in Denmark and 11 per cent in Baltic and other countries. The average number of employees during 2012 was 6,823, which compares to an average of 6,874 during 2011.
If’s corporate strategy theme, ‘Skills and Initiatives’ and its aim to strengthen the competence and innovation culture in the company. The theme, and the significant investments it has led to, made 2012 a year when personnel topics were in the forefront of realizing the company strategy. Mandatum Life continued to invest in competence development and the development of a customer centric culture.
The core of the Remuneration Principles is that all remuneration systems in Sampo Group shall safeguard the financial stability of the Group and comply with regulatory and ethical standards. They shall also be designed to balance the interests of different stakeholder groups such as shareholders, employees, customers and supervisory authorities. Furthermore, all compensation mechanisms shall be designed in parallel with the Risk
Management Principles. The Remuneration Principles apply to all companies within the Sampo Group and are available at www.sampo.com/remuneration.
After the deferral period, a retrospective risk adjustment review shall be carried out and the Board shall decide whether the deferred compensation can be paid out or not. For the year 2012, part of short-term incentives has been deferred. Payout from agreements or programs decided prior to the publishing of FSA
In 2012 EUR 17 million (7), including social costs, was paid on the basis of the long-term incentive scheme 2009:1. EUR 28 million
The terms of the long-term incentive schemes are available at www.sampo.com/remuneration.
• Reinsurance is used effectively to reduce exposures 3) Careful selection and execution of investment transactions
The main market risks of Sampo Group during 2012 were equity, interest rate, credit spread and currency risks.
During 2012, Sampo Group’s insurance risk profile remained relatively stable. In Mandatum Life longevity risk is still the most critical biometric risk and most of it arises from the with-profit group pension portfolio. In If P&C the most material insurance risk is reserve risk, which to a large extent is driven by long-tailed business such as workers’ compensation and motor third party liability.
shares. Shares can be repurchased in other proportion than the shareholders’ proportional shareholdings (private repurchase).
Shareholders The number of Sampo plc’s shareholders amounted to 82,216 as at 31 December 2012, a decrease of 3 per cent from the previous year. 1.3 per cent of shares had not been transferred to the bookentry system. The holdings of nominee-registered and foreign shareholders grew to 54.65 per cent (52.4) of the shares and 54.19 per cent of the votes (52.0).
Committee’s holdings of Sampo A shares. At the end of 2012, the members of Sampo plc’s Board of Directors and their close family members owned either directly or indirectly 11,933,741 (11,924,225)
Sampo A shares. Their combined holdings constituted 2.1 per cent of the share capital and related votes.
Shares owned by the Board of Directors and by the Group Executive Committee
Nominee registered total 299,154,781 53.42 52.97 * 4,468,476 A shares and 1,200,000 B shares
Shareholders by sector Sampo plc, 31 December 2012 (A and B shares)
On 3 September 2012 Sampo received a notification of change in holdings pursuant to Chapter 2, Section 9 of the Securities
Markets Act according to which the total number of Sampo A
Companies, Inc. had exceeded one twentieth (1/20) of Sampo plc's entire stock and voting rights.
Capital Group Companies, Inc., reported holdings separately based on an exemption granted by the Finnish Financial
2007). As a result of the corporate re-organization effective on 1
EUR 768 million in dividends from its subsidiaries and associated company Nordea Bank AB during 2012.
Ratings All the ratings for Sampo Group companies remained unchanged in 2012.
December 2009 Sampo Group became a financial and insurance conglomerate according to the Act on the Supervision of Financial and Insurance Conglomerates (2004/699).
Group solvency has in 2012 been calculated according to Chapter 3 of the Act on the Supervision of Financial and Insurance
Group solvency ratio (Own funds % of minimum requirements) 170.4 138.6
Group solvency ratio (own funds in relation to minimum requirements for own funds) increased significantly during 2012 and amounted to 170.4 per cent (138.6) as at 31 December 2012.
The increase was mainly caused by higher equity in Sampo Group and strong capital generation in Nordea. Changes in other items were relatively small.
2,162 million and interest bearing assets including bank accounts to EUR 1,048 million. During the year the net debt decreased to
In February 2012 Sampo plc issued a 5-year senior bond of EUR
500 million under the Euro Medium Term Note Programme and also bought back senior bond 6.339% 2012 issued in April 2009 with EUR 250 million. In April Sampo plc repaid the remaining 355 million of the afore-mentioned bond. In May 2012 Sampo plc increased the notional amount of the senior bond 3.25% 2014 from EUR 200 million to EUR 300 million. During the fourth quarter the amount of outstanding CPs was gradually decreased due to exceptionally strong liquidity. The outstanding issues, CPs and private placements are presented in the table below.
Senior Bond EURm 500 4.2500% Euribor 3M + 2.7910% 2.9810% 27 Feb 2017
To balance the risks on the Group level Sampo plc’s debt is tied to short-term interest rates and issued in euro or Swedish krona.
Capital - used as an internal basis for capital needs – currently represent normal levels of 40 per cent, 35 per cent and 13 per cent, respectively.
Abrupt changes in the business environment or major unforeseen events may always impact the profitability of Sampo Group.
The Board proposes to the Annual General Meeting a dividend of
EUR 1.35 per share to company’s 560,000,000 shares. The dividends to be paid are EUR 756,000,000.00 in total. Rest of funds are left in the equity capital.
Register of Shareholders held by Euroclear Finland Ltd as at the record date of 23 April 2013. The Board proposes that the dividend be paid on 30 April 2013.
Return on assets (at fair values) % 9.1 3.7 10.0 18.6 -7.4
Premiums written before reinsurers' share EURm 4,698 4,414 4,189 3,888 4,057
Return on equity (at fair values) % 28.5 -11.7 36.2 97.6 -68.8
Capital and reserves per share EUR 18.06 15.93 15.83 13.56 8.25
Adjusted number of shares at 31 Dec. 1,000 560,000 560,000 561,282 561,282 561,372
Adjusted number of shares at 31 Dec. 1,000 558,800 558,800 560,082 560,082 560,172
Average adjusted number of shares 1,000 558,800 559,663 560,121 560,170 568,242
Weighted average number of shares, incl. dilutive potential shares 1,000 558,800 559,663 560,121 560,170 568,242
Share trading volume during the financial year 1,000 252,821 399,759 381,863 452,367 650,816
¹) On 31 Dec. 2009 Nordea was consolidated as an associate to Sampo and Sampo became a financial and insurance conglomerate, in accordance with the Act on Supervision on Financial and Insurance Conglomerates (2004/699). In 2009 - 2012, the group solvency was calculated according to Chapter 3. In 2008, the group solvency was based on adjusted solvency calculations for insurance groups according to the Decree of the Ministry of Social Affairs and Health (1106/2000). The adjusted solvency was determined on the basis of the Group financial statements as permitted by the Financial Supervisory Authority.
In calculating the key figures the tax corresponding to the result for the accounting period has been taken into account. The valuation differences, adjusted with the deferred tax liability, on the investment property have been taken into account in return on assets, return on equity, equity/assets ratio and net asset value per share. Additionally, the items in the other comprehensive income have been taken into account in return on assets and return on equity. In the net asset value per share, the Group valuation difference on associates
CALCULATION OF THE KEY FIGURES The key figures have been calculated in accordance with the decree issued by the Ministry of Finance and the specifying regulations and instructions of the Financial Supervisory Authority. The Group solvency has been calculated according to the consolidation method defined in Chapter 3 of the Act on the Supervision of Financial and Insurance Conglomerates.
+ other operating income - staff costs - other operating expenses - finance costs
+ sectoral items - intangible assets and sectoral deductibles own funds, total - minimum requirements for own funds, total group solvency
+ liabilities for insurance and investment contracts - reinsurers’ share of insurance liabilities - 75 % x technical provisions relating to unit-linked insurance
+ valuation differences on investments less deferred tax adjusted number of shares at balance sheet date
121 Operational Risk Management in Mandatum Life 122 GROUP LEVEL RISK CONSIDERATIONS
Group’s parent company Sampo plc steers the subsidiaries by setting targets for subsidiaries’ return on equity and preconditions for operations according to which the subsidiaries organize their activities independently taking into account the specific characteristics of their own operations. The subsidiaries focus on their own business under the oversight of their Boards of
Group, the excess capital from an operational point of view is held by the parent company Sampo plc which capitalizes the subsidiaries with its liquid assets if needed.
The Board of Directors of the parent company decides on the main principles governing the subsidiaries risk management related operations of which the most significant are Code of
Conduct, Risk Management Principles, Remuneration Principles and Compliance Principles. In addition to these guidelines, the external regulatory environment and expectations of different stakeholders on Sampo Group’s operations impact Sampo plc’s
These expectations are openly welcomed although the significance of the expectations in relation to the operations is always assessed internally by Sampo Group.
Self-regulation of the business community and the best practices within banking and insurance industry are closely followed in
Since only the main principles regarding operations are prepared by the parent company, the subsidiaries’ management has the power and responsibility to incorporate the specific characteristics of their own operations to the company specific policies and instructions. The regulatory environment and stakeholders’ expectations are naturally also directly reflected on the organization of the subsidiaries’ operations.
At operative level, the subsidiaries focus on effective execution of insurance operations. Investments are managed according to the
Reporting on the subsidiaries to the Board of Directors and Audit
Board of Directors of Sampo plc decides on the Group’s capitalization as well as the parent company’s debt structure and liquidity reserve. The underlying objective of Sampo plc is to maintain a prudent debt structure and strong liquidity in order for the company to be able to arrange financing for strategic projects if needed. Strong liquidity and the ability to acquire financing are essential factors in maintaining Sampo Group’s strategic flexibility.
Sampo plc’s associated company thus affecting the Group’s profits and risks substantially. However, Nordea operates independently and the company’s risk management is not covered in Sampo Group’s annual report.
Group level. Furthermore, the same basic principles are primarily followed in the investment activities of both subsidiaries, although the risk level of If P&C’s investment portfolio is held significantly lower than the risk level Mandatum Life’s investment portfolio.
Sampo plc is a holding company and it has no business operations of its own, with the exception of the management of its own capital structure and liquidity position. The parent company’s liquidity position varies significantly throughout the calendar year
company often take place at different points in time. In addition, the issues and repayments of the parent company’s debt securities create fluctuations in cash flows.
Sampo Group’s main risks are illustrated in the figure Risk categories in Sampo Group. The risk categorization is mostly based on sources of risks, with the exception of P&C insurance underwriting risk in which the categorization is based on the administration practices of risks. This categorization distinguishes the risk of claims which have already happened in the past
Expense risk arises from the fact that the timing and/or the amount of expenses incurred differs from those expected at the timing of pricing. As a result expense charges originally assumed may not be enough to cover the realized expenses.
Market risk: Market risks refer to fluctuations in the financial results and capital caused by changes in market values of financial assets and liabilities as well as in insurance liabilities. Market values change together with underlying tradable market risk variables of which the following ones are currently the most important for
ALM risk: The company is exposed to ALM risk when changes in different market risk variables (e.g. interest rates, inflation, credit spreads, foreign exchange rates, share prices and their volatilities) cause a change in the value of investment assets that is of different size than the respective change in the economic value of insurance liabilities. ALM risk also includes a component of uncertainty related to technical provisions. The cash flows of technical provisions are modeled estimates and therefore uncertain in relation to both their timing and amount.
Concentration risk: Concentration risk arises when the company’s risk exposures are not diversified enough and as a result of this an individual claim or market event could threaten the solvency or the financial position of the company. Concentration risk may materialize also when the profitability and capital position is reacting similarly to general economic development or to structural changes in institutional environment in different areas of business.
• Credit and liquidity risks are managed by selecting counterparties carefully, using risk mitigation techniques and increasing diversification
Common prerequisite for all above mentioned core competencies is continuous development of employees’ knowledge and skills.
An illustration of the most significant risks in Sampo Group is presented in the figure Key risks in Sampo Group. The most significant risks when Nordea’s figures are included are credit risk, market risk, insurance risk and operational risk. The figure is for illustrative purposes only.
The size of the risks is estimated by economic capital techniques used in Sampo Group. Nordea is included in the economic capital figures by adding a proportion of the economic capital calculated by Nordea that corresponds to Sampo plc’s holding in the company. Further information on the economic capital figures is presented in chapter Capitalization.
Sampo plc’s holding in Nordea whose business activities in banking result in credit risk being a key risk.
Also the reporting models and valuation and risk measurement procedures related to independent measurement and control are important prerequisites for successful risk management process.
Independent specialists are also mainly responsible for the determination of reporting models and calculation procedures in use, although the business line organisations are consulted as well. Depending on the nature of the task in question, either business line organisations or independent risk management is responsible for the preparation of detailed instructions related to the tasks included in the risk management process.
• Continuous analysis and assessment of opportunities supporting the business transactions can be defined as a separate phase in the risk management process since a significant part of the time consumed in insurance and investment activities is allocated to the assessment of potential business activities and analysis of different opportunities. For example in investment activities, time is mainly consumed in the preparation of analyses supporting the transactions and not completing the decided transactions.
Even though persons independent of business operations with relevant expertise may participate in the analyses, the business functions have always the responsibility for this phase.
◦ risks affecting the profitability and other significant risks are identified, assessed and analyzed; ◦ capitalization taking into account the expected profitability of the businesses is adequate in terms of risks inherent in business activities and operating environment; ◦ risk bearing capacity is allocated into different business areas according to chosen strategies; ◦ insurance risks are properly priced, the expected returns and risks of investment activities are balanced according to the set targets and non-profit risks are managed at a sufficient level.
◦ client services and internal operative processes are working as expected in terms of quality and costs; ◦ decision making is based on accurate, adequate and timely information; ◦ continuity of operations is ensured and in case of discontinuity events recovery is fast and comprehensive.
The goals of the risk management process are essential steps in achieving the return on equity targets set by Sampo plc.
Achievement of the goals of risk management process may also mitigate the yearly fluctuations in profitability. The risk management process is therefore considered to be one of the central contributors in creating value for the shareholders of
governance structures of the Group and the subsidiaries as well as one of the central areas in the subsidiaries’ risk management –
Risk Governance at Group Level The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The
Group level on a quarterly basis and reported to the Board and to the Audit Committee of Sampo plc.
The reporting lines of different governing bodies at Sampo Group level are described in the figure Risk governance in Sampo
The Audit Committee (AC) is responsible, on behalf of the Board of Directors, for the preparation of Sampo Group’s risk management principles and other related guidelines. The AC shall ensure that the operations are in compliance with these, control
CRO’s responsibility is to monitor Sampo Group’s aggregated risk exposure as a whole and coordinate and monitor company specific and Group level risk management.
The Boards of Directors of If P&C and Mandatum Life are the ultimate decision making bodies of the respective companies and have the overall responsibility for the risk management process in
If P&C and Mandatum Life respectively. The Boards of Directors appoint the If P&C Risk Control Committee and the Mandatum Life
Furthermore, the IRCC also monitors that If P&C’s short-term and long-term aggregate risk profile is aligned with its risk strategy and capital adequacy requirements. The Risk Control unit within the Risk Management department is, on behalf of the Chief Risk
The respective risk committees in If P&C do not have a decision mandate. The responsibilities of the respective risk committees are: • The Chairman of the Investment Control Committee (ICC) is responsible for monitoring the investment activities and supervising the implementation of the Investment Policy ensuring compliance with the principles and limits specified in the Investment Policy and for reporting deviations from the policy.
Policy to the IRCC. UWC is responsible for monitoring compliance with the established underwriting principles. The committee shall propose changes and/or extensions to the
• The Reinsurance Committee (RC) is a collaboration forum formed to secure the objectives of Reinsurance in If. The
Reinsurance Committee is an advisory body where decision items are discussed and recommendations given. The committee shall consider and propose updates and changes to the Reinsurance Policy and the Internal Reinsurance Policy.
• The Chairman of the Operational Risk Committee (ORC) is responsible for reporting on the operational risk status for If
Operational Risk Assessment (ORA) process. The committee shall consider and propose changes and/or extensions to policies and instructions regarding operational risks.
• The Compliance Committee (CC) is a coordination forum and advisory body for the Chief Compliance Officer regarding legal compliance issues. The task of the forum is to secure a comprehensive view on compliance risk and activities in If
Risk Governance in Mandatum Life In Mandatum Life the Board of Directors is responsible for risk management and adequacy of internal control. The Board annually approves the Risk Management Plan, Investment Policy and other risk management and internal control instructions.
Directors’ instructions. The reporting lines of different governing bodies in Mandatum Life are described in the figure Risk governance in Mandatum Life.
controls that the investment activities are conducted within the limits defined in the Investment Policy approved by the
Mandatum Life’s Risk Management Committee. The Chairman of the Baltic Subsidiary is a member of the Risk Management
Various activities within this area are conducted and related procedures fine-tuned continuously in different parts of the organization. The figure Illustration of managing the balance between risks, capital and earnings in Sampo Group depicts the risk and capital management actions in Sampo Group on a general level.
Illustration of Managing the Balance between Risks, Capital and Earnings in Sampo Group
Capital adequacy is assessed internally by comparing the amount of available capital (called adjusted solvency capital in Sampo
Solvency I framework, items that absorb effectively potential losses (equalization reserves, discounting effects). These items will most probably be part of capital in Solvency II framework.
What are economic capital and adjusted solvency capital in Sampo Group?
Economic capital accounts for market, credit, insurance and operational risks, as well as the diversification effect between these risks. Economic capital is calculated using a set of calculation methods, which have been developed for the specific needs of each business area. When assessing the economic capital need arising from Nordea, Sampo plc uses the economic capital calculated by Nordea multiplied by the proportion of
Sampo plc’s share in Nordea (21.25 per cent at the end of 2012).
Different stakeholders have different views when assessing the available capital. Regulators have defined which items can be included into the solvency capital and rating agencies have their own definitions for capital. As an internal measure of available capital, Sampo Group uses adjusted solvency capital. The basis for adjusted solvency capital is capital items included in the regulatory solvency capital. On top of those, other risk absorbing items such as the difference between the book value and market value (including a risk margin) of technical provisions are added.
The economic capital and adjusted solvency capital as well as the regulatory and rating agency capital measures are reported internally at least on a quarterly basis and based on them capitalization is controlled by the subsidiaries’ and Sampo plc’s
Managements’ views and forecasts regarding the future development of the insurance and investment activities are used when analyzing the earnings potential and future capital requirement. The results of these considerations, as well as external stakeholders’ views on the capitalization of Sampo
Prudent assessment of capital adequacy and realized profitability and careful forecasting of profitability, risk and capital are important phases when forming an understanding of the actions that maintain a proper balance between profitability, risks and capital. In Sampo Group, the proactive management of profitability, risks and capitalization is seen as the most important phase in the risk and capital management process. Hence, risk policies and limits and decision making authorizations are set up in a way that they, together with profitability targets, facilitate business and investment units to take well-considered risks.
UNDERWRITING RISKS The book value (technical provisions) and economic value of insurance liabilities are dependent on (i) the size and timing of future claims payments including expenses and (ii) the interest rates used to discount these claims payments to current date. In this section the focus is mainly on the first component and hence on the underwriting risk. Discount rate risk and its effect on technical provisions are also described in this section. The interest rate risk affecting the economic value of liabilities is covered later in ALM risk section under Market Risks.
The UW Policy is supplemented with guidelines outlining in greater detail how to conduct underwriting within each business area. These guidelines cover such areas as tariff and rating models for pricing, guidelines in respect of standard conditions and manuscript wordings, as well as authorities and limits, such as sums insured and risks that are not acceptable to undertake. The
Underwriting Committee (UWC) is responsible for monitoring compliance with the established underwriting principles.
The degree of diversification is shown in the figure Breakdown of gross written premiums by business area, country and line of business, If P&C, 2012.
The item Other (including group eliminations) is not shown in the breakdowns above but it is included in total gross written premiums.
Despite the diversified portfolio, risk concentrations and thereby severe claims may arise through, for example, exposures to natural catastrophes such as storms and floods. Of the geographical areas where If P&C operates, the most exposed to such events are Denmark, Norway and Sweden. Also single large claims can potentially have a significant impact on the result. The economic impact of natural disasters and single large claims is mitigated using reinsurance.
If P&C’s Reinsurance Policy stipulates guidelines for the purchase of reinsurance. The need and optimal choice of reinsurance is analyzed based on statistical models for single large claims, whereas If P&C cooperates with external advisors for the evaluation of the exposure to natural catastrophes and the probability of occurrence of catastrophe losses. The analysis relies on catastrophe models in which catastrophes are simulated based on historical meteorological data, supplemented by statistical models. Different reinsurance structures are evaluated based on (i) their expected costs versus their benefits, (ii) their impact on result volatility and (iii) their effect on capital requirement (economic, regulatory and rating capital requirement).
since 2003. In 2012, retention levels were between SEK 100 million (approximately EUR 11.5 million) and SEK 200 million
Net premiums earned 4,363 +/- 1 per cent +/- 44 +/- 41
The technical provisions for unearned premiums is intended to cover anticipated claims costs and operating expenses during the remaining term of insurance contracts in force. Since claims are paid after they have occurred, it is also necessary to set provisions for claims outstanding. The technical provisions are the sum of provisions for unearned premiums and provisions for claims outstanding.
Actuary is responsible for developing and presenting guidelines on how the technical provisions are to be calculated and for assessing whether the level of the total provisions is sufficient.
The actuarial estimates are based on historical claims data and existing exposures at the balance sheet date. Factors that are monitored include loss development trends, the level of unpaid claims, legislative amendments, case law and economic conditions. When setting provisions, the Chain Ladder and
Bornhuetter-Fergusson methods are generally used, combined with projections of the number of claims and the average claim costs.
Danish technical provisions for these lines include annuities that are sensitive to changes in mortality assumptions and discount rates. The proportion of technical provisions that are related to
The book value of technical provisions and the duration broken down by line of business and major geographical area is shown in the table Technical provisions by line of business and major geographical area, If P&C, 31 December 2012.
Technical provision item Risk factor Change in risk parameter Country Effect EURm
Annuities Decrease in mortality Life expectancy increase by 1 year Sweden 14.0
Discounted reserves (annuities and part of Finnish IBNR) Decrease in discount rate Decrease by 1%-point Sweden 75.2
Biometric Risks Biometric risks in life insurance refer mainly to the risk that the company has to pay more mortality, disability or morbidity benefits than expected or the company has to keep paying pension payments to the pension policy holders for a longer time
(longevity risk) than expected when pricing the policies. The specific case in which a single event or series of single events of major magnitude leads to a significant deviation in actual benefits and payments from the total expected payments is called catastrophe risk.
The annual longevity risk result and longevity trend is analyzed regularly. The assumed life expectancy related to the technical provisions for group pensions was revised in 2002 and additional changes were made in 2007. The cumulative longevity risk result has been positive since these revisions. The longevity risk result of group pension for the year 2012 was EUR -0.7 million
Mortality risk result in life insurance is positive. A possible pandemic is seen as the most significant risk that could adversely affect the mortality risk result.
(surrender risk). Ability to keep lapse and surrender rates in a low level is a crucial success factor especially for the expense result of unit-linked business. From ALM point of view surrender and lapse risks are less significant because in Mandatum Life, approximately 90 per cent of with-profit policies are pension policies in which surrender is possible only in exceptional cases.
The company is also exposed to expense risk, which is a risk that the future operating expenses exceed the level that was anticipated when pricing the insurances. Policy terms and tariffs cannot usually be changed materially during the lifetime of the insurance, which increases the expense risk. The main challenge is to keep the expenses related to insurance administrative processes and complex IT infrastructure at an efficient level. In year 2012, expense result was EUR 5.8 million (EUR 9.8 million in 2011). Mandatum Life does not defer insurance acquisition costs.
The provisions related to each product type and guaranteed interest rates are shown in the table Analysis of the change in provisions before reinsurance, Mandatum Life, 2012. The table also shows the change in each category during 2012.
Reserve for decreased discount rate 108 0 0 0 0 0 10 118 1%
Mandatum Life parent company total 7,166 949 -691 -81 147 3 257 7,751 98%
The development of the structure and amount of Mandatum Life’s technical provisions is shown in the figure Development of withprofit and unit-linked technical provisions, Mandatum Life, 2004–2012.
The table Expected maturity of insurance and investment contracts before reinsurance, Mandatum Life, 31 December 2012 shows the expected maturity and duration of insurance and investment contracts of Mandatum Life. The sensitivity of technical provisions to changes in discount rates can be assessed on the basis of the durations shown in the table.
Expected Maturity of Insurance and Investment Contracts Before Reinsurance Mandatum Life, 31 December 2012
With-profit and others total 9.0 896 718 1,320 900 617 414 643
Life Insurance Risk Management Biometric risks are managed by careful risk selection, by pricing to reflect the risks and costs, by setting upper limits for the protection granted and by use of reinsurance.
Market risks related to financial assets in investment portfolios are mostly straightforward to analyze. The realization of risks is transparently reflected in financial accounts, because Sampo
Management (ALM) risk. ALM risk is not fully reflected in financial results, because insurance liabilities are not discounted with market rates for financial accounting purposes. In order to have a comprehensive, economic view on risks and capitalization, insurance liabilities are discounted with market rates and the so called discounting effect is taken into account in Sampo Group’s economic capital model. In Sampo Group Asset and Liability
Management (ALM) covers the management of economical risks arising from differences in assets and liabilities mainly related to interest rate sensitivity, currencies and inflation.
Sampo Group companies for ALM and investment portfolio risks is illustrated in figure Asset and liability management approach in
Solvency position and risk appetite are defining general capacity and willingness for risk taking. Stronger the solvency position and higher the risk appetite, more the investment portfolio can differentiate from a portfolio replicating cash flows of insurance liabilities.
Asset and Liability Management in If P&C The ALM risk in If P&C is managed in accordance with the Sampo
Group principles. ALM is taken into account through the risk appetite framework and is governed by the If P&C Investment
The value of the technical provisions is sensitive to, from an ALM
The objectives of If P&C’s currency risk management are to keep the foreign currency exposure arising from If P&C's normal business activities and investment decisions close to zero and to achieve the highest possible return from an active currency management within limits set by the investment policy.
To maintain the ALM risk within the overall risk appetite, the technical provisions may be matched through investments in fixed income instruments denominated in the same currency as the corresponding liability or by using currency derivatives. The
Asset and Liability Management in Mandatum Life The Board of Mandatum Life approves annually the Investment
Policy, which sets principles and limits for investment portfolio activities. The Investment Policy also includes control levels for maximum acceptable risk for the whole balance sheet and respective measures to manage the risk. These measures and control levels are based on both Solvency I and Solvency II type of approaches.
type of approach, control levels are set also based on other confidence levels in addition to the 99.5 per cent level used in
Life’s with-profit technical provisions are relatively well predictable, because in most of the company’s with-profit products, surrenders and premiums are restricted. The company’s claims costs do not contain significant inflation risk element and thus the inflation risk in Mandatum Life is mainly related to administrative expenses.
Investment Portfolio Risks Investments (excluding Mandatum Life’s investments covering unit-linked policies) are managed according to the subsidiaries’
Group companies’ Boards of Directors. The insurance subsidiaries and the parent company have a common Group wide infrastructure for investment management as well as performance and risk reporting. Sampo Group considers that it has a thorough understanding of Nordic markets and issuers and consequently
third party managed investments are mainly used. These investments are primarily used as a tool in tactical asset allocation when seeking return and secondarily in order to increase diversification.
Market risk control is separated from portfolio management activities. Middle Office functions measure risks and performance and control limits set in Investment Policies on a daily basis.
Development of Investment Portfolios If P&C, Mandatum Life and Sampo plc, 31 December 2012 and 31 December 2011
The compositions of the investment portfolios are reported on the basis of fair values of investments. These fair values are determined either on the basis of direct market quotes or by using various valuation models. More information on the valuation methods of the investment assets is presented in Note 17 in the
The investment allocations of If P&C, Mandatum Life, Sampo plc and Sampo Group are presented in the table Investment allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group,
The figure Annual investment returns at fair values, If P&C and
The weighted average investment return of the Group’s investment portfolios (including Sampo plc) in 2012 was 7.3 per cent (1.0 per cent in 2011).
Sampo Group’s fixed income investments are exposed to creditworthiness of issuers and derivative counterparties in general. Sampo Group, as an investor, invests mainly in tradable instruments instead of being a lender with mainly non-tradable loan instruments in its portfolio. Therefore, most of the Group’s credit risk potentially materializes as market value loss (spread risk) and the significance of credit losses (default risk) is secondary. The single name limit procedures to mitigate spread and default risks and Sampo Group’s approach to manage fixed income investments are described later in detail in the Credit risk section.
and 2.1 years in Mandatum Life. Interest rate sensitivity in terms of the average duration of fixed income investments including hedging derivatives in If P&C was 1.1 years and in Mandatum Life 1.8 years.
At the end of year 2012, the proportion of money market securities and cash was 12 per cent of the total investment portfolio. The proportion of high yield debt instruments was respectively 14 per cent. The proportion of public sector bonds was 4 per cent of the total investment portfolio.
Equity Investments The equity investments of Sampo Group totaled EUR 2,844 million at the end of year 2012 (EUR 2,620 million in 2011). During 2012, the increase in the weight of equity investments in the investment portfolio was mainly due to the rise in equity prices.
EUR 1,248 million (EUR 1,149 million in 2011). The proportion of equities in If P&C’s investment portfolio was 10.6 per cent. In
Mandatum Life, the equity exposure was EUR 1,578 million at the end of year 2012 (EUR 1,453 million in 2011) and the proportion of equities was 28.6 per cent of the investment portfolio. The equity portfolio consists of shares of Nordic companies as well as mutual fund and ETF investments outside Nordic countries.
Breakdown of Equity Investments by Geographical Regions Sampo Group, 31 December 2012
The geographical emphasis in Sampo Group’s equity investments is in Nordic companies. The proportion of Nordic companies’
equities corresponds to 56 per cent of the total equity portfolio.
The sector allocation of direct equity investments in Sampo Group is shown in table Credit exposures by sectors, asset classes and rating, If P&C, Mandatum Life and Sampo Group, 31 December 2012. The largest sectors are capital goods, consumer products and basic industry. Equity investments made through mutual funds and ETF investments accounted for 44 per cent of the entire equity portfolio.
Sampo Group’s largest equity holdings are disclosed in the Notes to the Financial Statements (Note 40).
The net position in each currency is the net of assets, liabilities and foreign exchange transactions denominated in the particular currency.
Transaction risk position, If P&C and Mandatum Life, 31 December 2012. The table shows the net transaction risk exposures and the changes in the value of positions given a 10 per cent decrease in the value of the home currency.
Transaction Risk Position If P&C and Mandatum Life, 31 December 2012
Base currency EUR USD JPY GBP SEK NOK CHF DKK LTL LVL Other Total, net
denominated dividends paid by If P&C and to debt instruments issued in other currencies than euro.
In addition to transaction risk, Sampo Group and its insurance subsidiaries are also exposed to translation risk. Sampo Group’s consolidated financial statements are denominated in euro.
Translation risk arises when entities with another base currency are consolidated into the Group financial statements. The effect of
Other Investments If P&C and especially Mandatum Life have real estate, private equity fund and alternative investments. The Investment Policies set limits for maximum allocations into these markets and products. On 31 December 2012, the combined share of the above mentioned investments was 5.0 per cent of the total investment portfolio. In If P&C the proportion was 1.1 per cent and in Mandatum Life it was 13.8 per cent.
Private equity and alternative investments are managed by external asset managers. The private equity fund portfolio is diversified both according to fund type and geographical areas.
Alternative investments are diversified between underlying asset classes, fund types and investment styles. The Group’s real estate portfolio is managed by Sampo Group’s real estate management unit. The portfolio includes direct investments in properties as well as indirect investments in real estate funds and shares and debt instruments in real estate companies. The main risks related to property investments are limited by diversifying holdings both geographically and by type of property.
CREDIT RISKS In Sampo Group, credit risk can materialize as market value losses when credit spreads are changing unfavourably (spread risk) or as credit losses when issuers of credit instruments or counterparties of financial derivatives or reinsurance transactions are failing to meet their financial obligations (default risk).
Default risk related to reinsurers arises through reinsurance receivables and through the reinsurers’ portion of the outstanding claims. Default risk of reinsurance counterparties mainly concerns
If P&C, as the use of reinsurance in Mandatum Life is relatively limited. In regards to financial derivatives the case is opposite.
Mandatum Life together with parent company Sampo plc are frequent users of financial derivatives and are therefore more exposed to default risk of derivative counterparties than If P&C.
Sampo Group, 31 December 2012. Due to differences in the treatment of derivatives, the figures in the table are not fully comparable with other tables in this annual report.
Credit Exposures by Sectors, Asset Classes and Rating If P&C, 31 December 2012
Credit Exposures by Sectors, Asset Classes and Rating Mandatum Life, 31 December 2012
Credit Exposures by Sectors, Asset Classes and Rating Sampo Group, 31 December 2012
Following a new definition, reinsurance recoverables excludes assumed reinsurance and includes premium reserve for the ceded reinsurance. The comparative figures have been changed accordingly and thus the 2011 figures in the table above differ from the table published in 2011.
In Mandatum Life, the importance of reinsurance agreements is limited and thus credit risk related to reinsurance counterparties in Mandatum Life is immaterial. At the inception of the reinsurance, the accepted credit risk of the reinsurer is considered and the credit risks of reinsurance assets are monitored.
Credit Risk Management In Sampo Group, the selection of direct debt investments is based primarily on ‘bond-picking’ and secondarily on top-down allocation. This investment style may lead into situation where portfolio is not as diversified as the finance theory suggests but includes thoroughly analyzed investments with risk-return-ratios in focus. Critical success factors of Sampo Group’s investment style are considered to be the following: 1. Potential investments must be understood thoroughly. Hence, the creditworthiness of the issuer or counterparty is assessed together with collaterals and other structural details of instruments. Although external credit ratings by rating agencies are used to support the internal assessment, Sampo
Group level to identify unwanted concentrations. Credit exposures are reported, for instance, by sectors and asset classes and within fixed income by ratings. Individual issuers’
Sampo plc and Mandatum Life which are frequent users of longterm derivatives.
In order to limit and control credit risk associated with reinsurance, If P&C has a Reinsurance Security Policy, which sets requirements for the reinsurers’ minimum credit ratings and the maximum exposure to individual reinsurers. Credit ratings from rating agencies are used to support the assessment of the creditworthiness of reinsurance companies similarly to the assessment of credit risk of investment assets.
LIQUIDITY RISKS Liquidity risk is the risk that insurance undertakings are unable to conduct their regular business activities in accordance with the defined strategy, or in extreme cases, are unable to settle their financial obligations when they fall due. Major sources of liquidity risk in Sampo Group are market illiquidity risk of investments, nonrenewal of insurance policies and refinancing risk of debt. Also the availability and price of refinancing and financial derivatives are identified as potential risks that could affect the company’s ability to conduct regular business.
The figure Illustration of liquidity risk presents liquidity risk on a general level.
During the year Sampo plc issued two bonds and the maturities
Sampo Group companies have business relationships with several creditworthy counterparties which mitigate the risk that
In Sampo Group, the parent company Sampo plc sets the following goals of operational risk management to subsidiaries: • To ensure simultaneously the efficiency and quality of operations; • To ensure that operations are compliant with laws and regulations; and
Complaints Handling Policy, Claims Handling Policy, and other steering documents related to different parts of the organization.
monitors and coordinates risk management issues regarding operational risks within Mandatum Life, such as policies and recommendations concerning operational risk management. The committee ensures that risks are identified and internal control and risk management have been organized in a proper way. The committee also analyses deviations from operational risk management policies and monitors operational risks identified in the self-assessments as well as the occurred incidents. The committee meets at minimum three times a year. Significant observations on operational risks are submitted to the Risk
• Analysis of incidents. Realized operational risks and near misses reported by the business units are collected and analyzed by ORC. Each business unit is responsible for ensuring that the occurred incidents and near misses are reported to the ORC.
In order to limit operational risks, Mandatum Life has approved a number of policies including e.g. Security Policies, Continuity and
operative activities. Deviations against different policies are followed up independently in each business unit and reported to
Mandatum Life are operating mostly in different lines of business and hence their underwriting risks are different. There are no material risk concentrations under normal course of business and, consequently, business lines as such are contributing diversification benefits rather than concentration of risks. The most material common risk factor is life expectancy in Finland that is affecting both companies’ technical provisions. On the other hand, both subsidiaries have significant investment portfolios and, thus, are potentially threatened with investment related concentration risks (for example large combined exposures).
Concentrations by sectors, asset classes and rating are illustrated in table Credit exposures by sectors, asset classes and rating, If
Fixed Income Investments in Public Sector Sampo Group, 31 December 2012
in the table Largest individual exposures by issuer and by asset class, Sampo Group, 31 December 2012.
Largest direct high yield and non-rated fixed income investments Rating Total fair value, EURm % of total direct fixed income investments
Nordea’s, quarterly profits since 2005 is very low. Sampo Group is also forecasting profits based on common scenarios for all the companies.
Mandatum Life and Nordea are depicted in the figure Correlations of quarterly reported profits, If P&C, Mandatum Life and Nordea, 1
Correlations of Quarterly Reported Profits If P&C, Mandatum Life and Nordea, 1 January 2005–31 December 2012
Board of Directors of Sampo plc has set an internal target that the adjusted solvency capital amount has to exceed the sum of the companies’ economic capital, excluding the diversification effects between companies.
Liquidity Liquidity risk is managed at company level and the Group companies maintain liquidity buffers that are considered to be adequate in their businesses. In the subsidiaries, the adequacy of liquidity buffers is dependent on expected net outflows of insurance cash flows. In the parent company, the adequacy of liquidity buffers is dependent on potential strategic arrangements and in general Sampo plc prefers to have strong liquidity. In the normal course of business, the subsidiaries do not invest in
Sampo plc’s debt instruments. However, a general prohibition to intra-Group asset transactions has not been deemed necessary and, thus, subsidiaries are allowed to invest in the parent company’s debt instruments and sell assets to each other at market prices, especially when this is justified by business opportunities. Thus, during possible market stresses these options are available to a certain extent as well. In Mandatum Life, there are investments in Sampo plc’s debt instruments related to unit-linked policies.
– parent company, two subsidiaries and the associated companies – is simple, straightforward and transparent. The structure as such effectively mitigates any risks related to complex structures. Structural simplicity and transparency together with a limited amount of intercompany exposures within
Nordea) and diligently managed capitalization of subsidiaries also effectively protects Group companies from contagion risks.
In the internal assessment, the amount of adjusted solvency capital is compared to the economic capital. Definitions of adjusted solvency capital and economic capital are included in chapter Balance between Risks, Capital and Earnings. In the regulatory assessment, the regulatory solvency capital is compared to the regulatory capital requirement. In rating agency based capitalization assessment, the objective is to balance the available capital measured by respective rating agency criteria with the capital amount needed to achieve the internally set rating target.
Capitalization at Group level The adjusted solvency capital of Sampo Group’s insurance subsidiaries increased during the year due to result and positive changes in fair value reserves. This growth was partly offset by lower interest rates and respective changes in liability side adjustment and, in addition, due to paid dividends. The changes in subsidiaries’ risk exposures and hence in economic capital were modest. At Sampo Group level Nordea’s and Sampo plc’s figures are taken into account as well when adjusted solvency capital and economic capital figures are calculated. At Group level the amount of adjusted solvency capital increased more than economic capital and hence capitalization can be considered stronger than year ago. The development of capitalization in
December 2012 shows the contributions of the different business areas including Nordea to Sampo Group’s total economic capital as well as the diversification effect included in the calculation of
Group’s economic capital. The figure also shows the amount of adjusted solvency capital at Group level comprising Solvency I
Sampo Group’s economic capital increased during the year and amounted to EUR 4,560 million at the end of 2012 (EUR
4,374 million in 2011). The amount of adjusted solvency capital at
(EUR 2,888 million in 2011) and capitalization by internal measures is strong.
Nordea is included in the calculation of Sampo Group’s economic capital by adding Sampo Group’s share of the economic capital reported by Nordea, converted into the 99.5 per cent confidence level. At year end, the risks arising from Nordea constitute the largest single component in Sampo Group’s economic capital.
Regulatory Solvency Capital at Group Level Sampo Group reports its Group solvency quarterly to the Finnish supervisory authorities monitoring the Group. The calculation of
Group’s solvency ratio was 170 per cent (139 per cent in 2011).
Capitalization at Subsidiary level The split of economic capital by risk type and the adjusted solvency capital in If P&C and Mandatum Life is depicted in the figure Breakdown of capitalization, If P&C and Mandatum Life, 31
If P&C’s share of Topdanmark’s regulatory solvency requirement of EUR 105 million as at the end of year 2012 is included in the economic capital.
EUR 3,090 million (EUR 2,854 million at the end of 2011), and in
Mandatum Life was 6.3 at the end of year 2012. Regulatory solvency capital, which is used to assess the solvency of an insurance company, is not calculated for the parent company
EUR 3,101 million (EUR 2,698 million in 2011) while the regulatory capital requirement was EUR 859 million (EUR 841 million in 2011).
EUR 1,402 million (EUR 1,041 million in 2011) while the regulatory capital requirement was EUR 222 million (EUR 226 million in 2011).
Sensitivity Analysis of the Capital Position The total sensitivity of equity is shown in the table Sensitivity analysis of capitalization to market risks, If P&C, Mandatum Life and Sampo plc, 31 December 2012 separately for the insurance subsidiaries together with the corresponding effect on the discounted value of liabilities and adjusted solvency capital.
Sensitivity Analysis of Capitalization to Market Risks If P&C, Mandatum Life and Sampo plc, 31 December 2012 31 Dec 2012 Interest rate Equity Other financial investments
On the other hand, the effect on adjusted solvency capital would be positive due to the fact that the market value of technical provisions would decrease as a result of applying a higher discount rate.
RISK MANAGEMENT PROCESS OUTLOOK Sampo Group companies continuously develop their risk management processes. This work is based on internal needs and regulatory requirements of which the future Solvency II is the most important. The uncertainty around the Solvency II
During spring 2013, Mandatum Life and If P&C will participate on
Authority) LTGA exercise that effectively is a new QIS exercise with focus on long term guarantees. In addition to this exercise, work around Solvency II will continue during 2013.
FINANCIAL STATEMENTS 137 GROUP'S IFRS FINANCIAL STATEMENTS 137 Consolidated comprehensive income statement, IFRS
Change in liabilities for insurance and investment contracts 4 -719 241
Other comprehensive income for the period, net of tax 451 -352
**) The amount recognised in equity from available-for-sale financial assets for the period totalled EURm 384 (-409). The amount transferred to p/l amounted to EURm 11 (30).
Notes to the accounts Summary of significant accounting policies Sampo Group has prepared the consolidated financial statements for 2012 in compliance with the International Financial Reporting
Standards (IFRSs). In preparing the financial statements, Sampo has applied all the standards and interpretations relating to its business, adopted by the commission of the EU and effective at
During the financial year, Sampo adopted the following amended standard relating to its business.
(effective for annual periods beginning on 1 July 2011 or after)
Improvements to IFRSs 2011 – various minor changes made to different standards at the same time. The changes were not material to Sampo’s financial statements reporting.
The following exchange rate was applied in the consolidated financial statements: Balance sheet date
Segment reporting The Group’s segmentation is based on business areas whose risks and performance bases as well as regulatory environment differ from each other. The control and management of business and management reporting is organised in accordance with the business segments. The Group’s business segments are P&C
Insurance premiums Insurance premiums in the income statement consist of premiums written for P&C insurance and life insurance.
According to the Group’s risk management policy, investments are managed at fair value in order to have the most realistic and real-time picture of investments, and they are reported to the
Financial assets designated as at fair value through profit or loss are assets which, at inception, are irrevocably designated as such.
They are initially recognised at their fair value. Gains and losses arising from changes in fair value, or realised on disposal, together with the related interest income and dividends, are recognised in the income statement.
Fair value The fair value of financial instruments is determined primarily by using quoted prices in active markets. Instruments are measured either at the bid price or at the last trade price, if the instrument is a share listed at NASDAQ OMX. The financial derivatives are also measured at the last trade price. If the financial instrument has a counter-item that will offset its market risk, the mid-price may be used to that extent. If a published price quotation does not exist for a financial instrument in its entirety, but active markets exist for its component parts, the fair value is determined on the basis of the relevant market prices of the component parts.
If a market for a financial instrument is not active, or the instrument is not quoted, the fair value is established by using
When there is objective evidence of impairment of a financial asset carried at amortised cost, the amount of the loss is measured as the difference between the receivable’s carrying amount and the present value of estimated future cash flows discounted at the receivable’s original effective interest rate. The difference is recognised as an impairment loss in profit or loss.
As there are no quoted prices available in active markets for unquoted equities and participations, the aim is to determine their fair value with the help of generally accepted valuation techniques available in the markets. The most significant share of unquoted equities and participations comprise the private equity and venture capital investments. They are measured in accordance with the generally accepted common practice,
The significance and prolongation of the impairment in the lastmentioned cases is assessed case by case, taking into consideration special factors and circumstances related to the investment. Sampo invests in private equity and venture capital in order to keep them to the end of their life cycle, so the typical lifetime is 10 – 12 years. In general, a justifiable assessment of a potential impairment may only be done towards the end of the life cycle. However, if additionally there is a well-founded reason to believe that an amount equivalent to the acquisition cost will not be recovered when selling the investment, an impairment loss is recognised.
If, in a subsequent period, the fair value of a debt security increases and the increase can objectively be related to an event occurring after the impairment loss was recognised in profit or
Derivative financial instruments and hedge accounting Derivative financial instruments are classified as those held for trading and those held for hedging, including interest rate derivatives, credit risk derivatives, foreign exchange derivatives, equity derivatives and commodity derivatives. Derivative instruments are measured initially at fair value. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
P&C insurance. Both fair value and cash flow hedging have been applied in life insurance.
Securities lending Securities lent to counterparties are retained in the balance sheet.
Conversely, securities borrowed are not recognised in the balance sheet, unless these are sold to third parties, in which case the purchase is recorded as a trading asset and the
Intangible assets with finite useful lives are measured at historical cost less accumulated amortisation and impairment losses.
Property, plant and equipment Property, plant and equipment comprise properties occupied for
Sampo’s own activities, office equipment, fixtures and fittings, and furniture. Classification of properties as those occupied for own activities and those for investment activities is based on the square metres in use. If the proportion of a property in Sampo’s
use is no more than 10 per cent, the property is classified as an investment property.
Property, plant and equipment are measured at historical cost less accumulated depreciation and impairment losses. Improvement costs are added to the carrying amount of a property when it is probable that the future economic benefits that are attributable to the asset will flow to the entity. Costs for repairs and maintenance are recognised as expenses in the period in which they were incurred.
Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful life. In most cases, the residual value is estimated at zero. Land is not depreciated.
Estimates of useful life are reviewed at financial year-ends and the useful life is adjusted if the estimates change significantly. The estimated useful lives by asset class are as follows: Residential, business premises and offices 20 - 60 years
Depreciation of property, plant or equipment will be discontinued, if the asset in question is classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Group will estimate the recoverable amount of the asset. In addition, goodwill, intangible assets not yet available for use and intangible assets with an indefinite useful life will be tested for impairment annually, independent of any indication of impairment.
The risks involved in insurance and investment contracts are widely elaborated in the Group’s financial statements’ Risk
A reinsurance contract is a contract which meets the IFRS 4 requirements for insurance contracts and on the basis of which
Other than insurance contracts, i.e. contracts where the risk is not transferred, include Captive contracts in which an insurance company underwrites a company’s direct business and reinsures the same risk in an insurance company in the same group as the policyholder. There are also contracts in P&C insurance (Reverse
Insurance liabilities are the net contractual obligations which the insurer has on the basis of insurance contracts. Insurance liabilities, consisting of the provisions for unearned premiums and unexpired risks and for claims outstanding, correspond to the obligations under insurance contracts.
The provision for claims outstanding is intended to cover the anticipated future payments of all claims incurred, including
Pensions and compensation for healthcare or medical rehabilitation paid on the basis of Finland’s statutory P&C
insurance (accident, motor third party liability and patient insurance) are raised annually by the TEL (Employee Pensions
Statement item 'Other expenses from operations'. The share of a balancing figure not yet received from, or not paid by, a central organisation is presented as current receivables or liabilities in the balance sheet items 'Other assets' or 'Other liabilities'.
Acquisition costs include operating expenses directly or indirectly attributable to writing insurance contracts, fees and commissions, marketing expenses and the salaries and overheads of sales staff.
Acquisition costs are amortised in the same way as provisions for unearned premiums, usually in 12 months at the maximum.
The discretionary participation feature (DPF) of a contract is a contractual right held by a policyholder to receive additional benefits, as a supplement to the guaranteed minimum benefits.
The interest rate used in discounting liabilities is, at most, the maximum rate accepted by the authorities in each country. The guaranteed interest used in the direct insurance premium basis varies on the basis of the starting date of the insurance from zero to 4.5 per cent. The interest rate used in discounting liabilities is the same or lower than that used in premium calculation. Most of the liabilities of the accrued benefits of pension business with
The provision for claims outstanding is intended to cover the anticipated future payments of all claims incurred, including claims not yet reported to the company (the “IBNR” provision).
The amounts of short- and long-term liabilities in technical provisions are determined annually. The Group’s financial statements’ Risk Management section elaborates on the change of technical provisions and their forecast annual maturities.
For the unit-linked business, the present values of the insurance risk and expense results are calculated correspondingly. If the aggregate amount of the liability for the unit-linked and other
Mandatum Life aims at giving a total return before charges and taxes on policyholders’ savings in contracts with DPF that is at least the yield of those long term bonds, which are considered to have lowest risk. At the moment we consider German government bonds to be the most risk free long term bonds available. Nevertheless, Finnish government bonds are used as target levels at the moment. The total return consists of the guaranteed interest rate and bonuses determined annually.
The legislation of Estonia, Latvia and Lithuania respectively does not contain provisions corresponding to the Principle of Fairness.
Sampo has defined benefit plans in Sweden and Norway, and defined contribution plans in other countries. The most significant defined contribution plan is that arranged through the Employees’
In defined benefit plans, the company still has obligations after paying the contributions for the financial period and bears their actuarial and/or investment risk. The obligation is calculated separately for each plan using the projected unit credit method. In calculating the amount of the obligation, actuarial assumptions are used. The pension costs are recognised as an expense for the service period of employees.
established pension obligations less 3) revenues from the assets covered by the plan. The calculation of pension costs during the financial year starts at the beginning of the year and is based on assumptions about such factors as salary growth and price inflation throughout the duration of the obligation and on the anticipated/expected return on the plan’s assets and the market interest rate on the obligation during the financial year.
Share-based payments During the financial year, Sampo had two valid share-based incentive schemes settled in cash (the long-term incentive schemes 2009 I and 2011 I for the management and key employees). The schemes have been measured at fair value at the grant date and at every reporting date thereafter.
The fair value of the schemes has been determined using the
Deferred tax is calculated on all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Deferred tax is not recognised on non-deductible goodwill impairment, and nor is it recognised on the undistributed profits of subsidiaries to the extent that it is probable that the temporary difference will not reverse in the foreseeable future.
A deferred tax asset is recognised to the extent that it is probable that future taxable income will be available against which a temporary difference can be utilised.
From the beginning of 2013, the tax rate in Sweden was lowered from 26.3 % to 22 %. The taxable income for the financial year is based on 26.3 %, but the lower rate has been used in the calculation of deferred taxes.
Sampo’s perspective, accounting policies concerning these areas require most significant use of estimates and assumptions.
Goodwill, intangible assets not yet available for use, and intangible assets with an indefinite useful life are tested for impairment at least annually. The recoverable amounts from cashgenerating units have mainly been determined using calculations based on value in use. These require management estimates on matters such as future cash flows, the discount rate, and general economic growth and inflation.
Application of new or revised IFRSs and interpretations In 2013 and 2014, the Group will apply the following new or amended standards and interpretations related to the Group’s business.
IFRS 13 Fair Value Measurement (effective for annual periods beginning on 1 Jan 2013 or after) combines in one standard the determination of fair value and defines the concept of fair value more precisely. The new standard will have an impact mainly on the Group’s disclosures.
(effective for annual periods beginning on 1 Jan 2013 or after)
includes the requirements for separate financial statements to the extent they have not been included in the new IFRS 10. The adoption of the revised standard will have no material impact on the Group’s financial statements reporting.
Change in liabilities for insurance and investment contracts -78 -642 - 1 -719
Share of associate's other comprehensive income - - 9 - 9
Income tax relating to components of other comprehensive income -56 -58 0 0 -114
Investments related to unit-linked insurance contracts - 3,834 - -1 3,833
Liabilities for insurance and investment contracts 9,854 4,071 - - 13,925
Liabilities for unit-linked insurance and investment contracts - 3,833 - -1 3,832
Included in gains/losses from financial assets available-for-sale is a net gain of EURm -58 (25) transferred from the fair value reserve.
Included in gains/losses from financial assets available-for-sale is a net gain of EURm -2 (3) transferred from the fair value reserve.
Total claims cost attributable to current-year operations -3,218 209 -3,009 -3,107 171 -2,936
Total claims cost attributable to prior-year operations 139 -6 133 169 -33 135
Contracts with discretionary participation feature (DPF) -346 -353 51 -114 -296 -467
Financial Statements 4 Change in liabilities for insurance and investment contracts
Change in liabilities for insurance and investment contracts in total, gross -642 348
Change in liabilities for insurance and investment contracts in total, net -642 348
Administrative expenses pertaining to other technical operations (Operating expenses) -30 -27
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period -8 -8 - direct operating expenses arising from investment property not generating rental income during the period -1 -1
Fair values for the Group's investment property are entirely determined by the Group based on the market evidence.
For the purpose of testing goodwill for impairment, Sampo determines the recoverable amount of its cash-generating units, to which goodwill has been allocated, on the basis of value in use. Sampo has defined these cash-generating units as If Group and Mandatum
The recoverable amounts for If have been determined by using a discounted cash flow model. The model is based on Sampo’s management’s best estimates of both historical evidence and economic conditions such as volumes, margins, income and cost development. The value in use model for Mandatum Life has been fundamentally based on the embedded value model where the cash flow estimates for existing policies are based on budgets approved by the management and on historical evidence in terms of policy surrendering, death and accident frequencies etc. The derived cash flows were discounted at the pre-tax rates of the weighted average cost of capital which for If was 9.1 % and for Mandatum Life 9.5 %.
Forecasts for If, approved by the management, cover years 2013 – 2015. The cash flows beyond that have been extrapolated using a 2 % growth rate. A 2 % growth rate for years beyond 2012 has been used for the markets where Mandatum Life operates.
In Mandatum Life, the recoverable amount exceeds its carrying amount by some EURm 130. With the calculation method used, e.g. a long-term decline of several percentage points in annual investment returns could lead to a situation where the recoverable amount of the entity would equal its carrying amount.
Associates that have been accounted for by the equity method at 31 Dec. 2012
Nordea is an universal bank with positions within corporate merchant banking as well as retail banking and private banking. With approximately 1.400 branches, call centers in all Nordic countries and an e-bank, Nordea also has a large distribution network for customers in the Nordic and Baltic sea region, including more than 260 branches in five new European markets, Russia, Poland,
Sampo's holding in Nordea was 21.25 % with the goodwill related to the acquisitions of EURm 978.
Financial assets designated as at fair value through p/l 22 155
Currency options, bought and sold - - - 211 2 2
Financial assets available-for-sale for P&C insurance include impairment losses EURm 323 (330).
Equity and equity index options - - - 29 0 0
Total derivatives held for hedging 584 23 - 510 2 38
Net result from exchange derivatives designated as fair value hedges amounted to EURm 12 (-11). Net result from hedged risks in fair value hedges of available for sale financial assets amounted to EURm -11 (11).
(2). These gains are recognised in the income statement at the time when the hedged items affect profit or loss. The table below represents the periods when the cash flows are expected to occur and when they are expected to affect profit or loss. Any ineffectiveness is recognised in the income statement.
Financial assets available for sale / debt securities: Debt securities available for sale include EURm 2,381 (2,494) investments in bonds and EURm 405 (338) investments in money market instruments.
Equity and euqity index options 90 16 19 80 13 17
Financial assets available-for-sale for Holding business include impairment losses EURm 0 (0).
Total financial assests measured at fair value - 282 - 282
The sensitivity of financial assets and liabilites to changes in exchange rates is assessed on business area level due to differenct base currencies. In P&C insurance, 10 percentage point depreciation of all other currencies against SEK would result in an effect recognised in profit/loss of EURm 15 (9) and in an effect recognised directly in equity of EURm 11 (1). In Life insurance, 10 percentage point depreciation of all other currencies against EUR would result in an effect recognised in profit/loss of EURm 52 (20) and in an effect recognised directly in equity of EURm 64 (60). In Holding, 10 percentage point depreciation of all other currencies against EUR would have no impact in profit/loss, but an effect recognised in equity of EURm 3 (2). The sensitivity analysis of the Group's fair values of financial assets and liabilities in differenct market risk scenarios is presented below. The effects represent the instantaneous effects of a one-off change in the underlying market variable on the fair values on 31 Dec. 2012. The sensitivity analysis includes the effects of derivative positions. All sensitivities are calculated before taxes.
Effect of reasonably possible alternative assumptions (+ / -) Carrying amount
In life insurance, EURm 4 of deferred tax asset has not been recognised on unused tax losses.
More information on P&C insurance's insurance liabilities in the Risk Management section of the Annual accounts.
The calculation is based on items before reinsurers' share. A more detailed specification of changes in insurance liabilities is presented in Group's Risk Management.
Exemption allowed in IFRS 4 Insurance contracts has been applied to investment contracts with DPF or contracts with a right to tradeoff for an investment contract with DPF. These investment contracts have been valued like insurance contracts.
Preferred capital note, 2002 (nominal value EURm 65) 20 years 66 68
Preferred capital note, 2011 (nominal value EURm 110) 30 years 109 109
The loan issued in 2002 was issued to If's previous owners in relation to their holding in If. The loan issued in 2011 is wholly subscribed by Sampo Plc.
Present value of estimated pension obligation 516 50 565 506 71 577
Losses or gains on curtailments and settlements 1 1 0 1 1
Minimum lease payments not later than one year 37 41 later than one year and not later than five years 110 105 later than five years 101 120
The subsidiaries If P&C Insurance Ltd and If P&C Insurance Company Ltd provide insurance with mutual undertakings within the Nordic
In connection with the transfer of property and casualty insurance business from the Skandia group to the If Group as of March 1, 1999,
If P&C Insurance Holding Ltd and If P&C Insurance Ltd have separately entered into contracts with Försäkringsaktiebolaget Skandia
Company (U.K.) Ltd. (now Marlon Insurance Company Ltd.) in favor of the Institute of London Underwriters. Marlon Insurance Company
Ltd. was disposed during 2007, and the purchaser issued a guarantee in favour of If for the full amount that If may be required to pay under these guarantees.
Normal seller's guarantees have been given in connection the disposal of the subsidiary IPSC Region.
If P&C Insurance Company Ltd has outstanding commitments to private equity funds totalling EURm 6, which is the maximum amount that the company has committed to invest in the funds. Capital will be called to these funds over several years as the funds make investments.
Minimum lease payments not later than one year 1 1 later than one year and not later than five years 3 3 later than five years - 0
There was no change in the company's share capital of EURm 98 during the financial year.
At the end of the financial year 2012, the mother company or other Group companies held no shares in the parent company.
The key management personnel in Sampo Group consists of the members of the Board of Directors of Sampo plc and Sampo Group’s
Over 140 persons were included in the schemes at the end of year 2012.
The amount of the performance-related bonus is based on the value performance of Sampo's A share and on the insurance margin (IM)
is 6 per cent or more, and 35 per cent, if the IM is between 4 - 5.99 per cent. No IM-related reward will be paid out, if the IM stays below these. In addition, the return on the risk adjusted capital is taken into account so that an incentive reward of 30 per cent is paid out, if the return is at least risk free return + 4 per cent. If the return is risk free return + 2 percent, but less than risk free return + 4 percent, the payout is 15 per cent. If the return stays below these benchmarks, no RORAC-based reward will be paid out.
Price of Sampo A at terms approval date *) 16.74 18.1 18.1
Total cost for the financial period, meur (incl. social costs) 28 *) Grant dates vary **) Trade-weighted average for ten trading days from the approval of terms
EQT IV ISS Co-investment Limited Partnership United States 872,610 12.52 % 11
Goldman Sachs Loan Partners I Offshore B, L.P. Cayman islands 16
Goldman Sachs Loan Partners I Offshore Inv. Fund L.P. Cayman islands 103
Highbridge Principal Strategies - Senior Loan Fund II L.P. Cayman islands 28
In the meeting of 13 Feb. 2013, the Board of Directors decided to propose at the Annual General Meeting on 18 April 2013 a dividend distribution of EUR 1.35 per share, or total EUR 756.000.000, for 2012. The dividends to be paid will be accounted for in the equity in 2013 as a deduction of retained earnings.
Summary of Sampo plc’s significant accounting policies The presentation of Sampo Plc's financial statements together with the notes has been prepared in accordance with the Finnish
Accounting Act and Ordinance. The accounting principles applied to the separate financial statements of Sampo plc do not materially differ from those of the Group, prepared in accordance with the International Financial Reporting Standards (IFRSs). The financial assets are measured at fair value derived from the markets. See The accounting principles for the Group.
Income from property occupied for own activities 0 0 2 Depreciation and impairment
Amortisation according to plan during the financial year - 0 - 0
Accumulated depreciation at beginning of year - -1 - -1 of which related to disposals - - - 0
Depreciation according to plan during the financial year 0 0 0 0
Carrying amount at end of year 1 3 1 3 8 Receivables from Group companies
EURm Share capital Share premium account Legal reserve Fair value reserve
Financial assets available-for-sale - recognised in equity 4 4 - recognised
Other reserves 273 273 15 Share capital Information on share capital is disclosed in Note 34 in the consolidated financial statements.
Notes to the income taxes 18 Deferred tax assets and liabilities
Notes to the liabilities and commitments 19 Pension liabilities The basic and suplementary pension insurance of Sampo plc's staff is handled through insurances in Varma Mutual Insurance Company and in Mandatum Life Insurance Company Limited.
Over one year but not more than five years 3 3
Pension liability The retirement age of the Managing Director is 60 years, when the pension benefit is 60% of the pensionable salary.
Notes to the shares held 24 Shares held as of 31 Dec, 2012 Company name Percentage of share capital held*) Carrying amount EURm
APPROVAL OF THE FINANCIAL STATEMENTS AND THE BOARD OF DIRECTORS' REPORT Helsinki, 13 February 2013
Sampo plc for the financial period 1.1. - 31.12.2012. The financial statements comprise the consolidated statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows, and notes to the consolidated financial statements, as well as the parent company’s balance sheet, income statement, cash flow statement and notes to the financial statements.
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with
Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the
Board of Directors give a true and fair view of both the consolidated and the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.
CALENDAR AND CONTACTS 259 FINANCIAL INFORMATION AND ANNUAL GENERAL MEETING 2013 261 CONTACTS
The registration for the AGM will finish at 4 pm (CET+1)
• By telephone to +358 10 516 0028 from Monday to Friday, 9 am-4 pm (CET+1)
Sampo plc's Annual General Meeting will be held on 18 April, 2013 at 2 pm, at the Helsinki Exhibition and Convention Centre, address Messuaukio 1, Helsinki. The listing of persons who have registered for the meeting will commence at 12.30 pm.