I have my doubts as to whether the European model will perform well in a global economy. Its recent track record does not make for good reading: the eurozone countries have on average a 12 per cent unemployment rate and youth unemployment stands at a staggering 23 per cent. On top of this the eurozone countries have raised over EUR 1,000 billion in new debt over the last five years. As a remedy for this politicians offer tax increases and more bureaucracy. It is highly unlikely that such troubled European nations will be able to tax themselves out of their problems.
The overall favorable weather of 2014 in the Nordic countries thankfully spared our customers from major events and supported a good claims ratio outcome. Sometimes winners need a bit of luck.
Nordea’s fourth quarter and full-year 2014 operating profit were the best on record. Especially noteworthy is the strong growth of Nordea’s asset under management (AUM) which has now reached a new record level of EUR 262 billion.
As the main owner of Nordea we have actively participated in the governance and the long-term development of the bank. Nordea proposes to increase its dividend in the spring of 2015 by 44 per cent compared to the previous year.
Even interest rates falling to new low levels did not stop Mandatum Life from breaking many old records in 2014: unit-linked premiums reached a new high of EUR 961 million and the expense result was the best that has ever been achieved. In sales, Mandatum Life’s Wealth Management continued to perform well and the cooperation with Danske Bank proved to be successful with a significant improvement in sales towards the year end.
Last but not least, I would like to thank all of our employees for making it possible to once again increase our shareholder value. I also want to thank our customers – many of whom are our shareholders – for your support and trust.
SStrtraattegyegy Sampo Group creates value for its shareholders through efficient and highly profitable operating units and by investments in situations offering significant upside potential with manageable downside risk. Shareholders benefit from the value creation through a high and stable dividend yield as Sampo plc upstreams the dividends it receives from its subsidiaries and associates to its shareholders.
If P&C Insurance – Security and Stability If’s vision is to offer insurance solutions that provide customers with security and stability in their daily lives and business operations with such excellence that If is the preferred insurance provider in the Nordic and Baltic markets. This vision is expressed through the customer promise “Relax, we’ll help you”.
• The PrivPrivaattee business area is If’s largest business area and Nordic market leader with more than three million private individuals as customers.
• The BalticBaltic business area offers property and casualty insurances for both private individuals and corporate customers. If is the second largest P&C insurer in the Baltic region and market leader in Estonia, with approximately 300,000 customers.
• EurEurope’ope’s moss most prt profofesessional and innosional and innovvaativtive Pe P&C&C insurinsurancance pre profofesessionalssionals If continues to strengthen its underwriting competences within the “Best in Risk” concept. The concept focuses on understanding all aspects of risk management, including product, pricing and risk quality, throughout the organization.
• SStable prtable profitability throfitability through underwritingough underwriting eexxccellencellence and opere and operaational efficienctional efficiencyy Profitability in the core business achieved by accurate pricing of risk. Continuous focus on cost efficiency, an investment strategy based on balanced risk and creditworthiness also contribute to a strong and stable profitability.
Mandatum Life began offering its own wealth management services in 2008. Wealth management is primarily focused on high-net-worth individuals; however, the comprehensive range of investment baskets managed by the wealth management service is available to a broad spectrum of private customers through unit-linked pension insurance. Institutions constitute a key section of wealth management’s customers. Mandatum Life established fund business especially to cater to the needs of institutional customers.
The parent company for the Mandatum Life Group is Mandatum Life Insurance Company Limited, the subsidiaries of which are, following the change in corporate structure in 2014, Mandatum Life Services Ltd., Mandatum Life Investment Services Ltd., Mandatum Life Fund Management S.A. as well as Innova Services Ltd. and Mandatum Life Insurance Baltic SE that continue their operations as before. As part of the change in corporate structure, Mandatum Life expanded its wealth management services.
Mandatum Life serves its private customers mainly through Danske Bank’s distribution channel. Cooperation with Danske Bank has continued to be successful for several years.
Mandatum Life’s goal is to maintain its position as Finland’s largest life insurer in the corporate customer segment. Mandatum Life estimates that there is still a growing need for Finns to secure their income during retirement and to prepare for health and life risks. The company believes that voluntary corporate pension schemes will play an increasingly important role in complementing statutory earnings-related pensions. Also services intended for companies’ personnel, such as personnel funds, are a key component of the service Mandatum Life provides companies with.
Mandatum Life ceased to actively sell contracts with a guaranteed interest rate more than ten years ago. Behind this decision was a declining interest rate level and uncertainty in the capital requirements resulting from long-term guaranteed interest rates. After the final form of the Solvency II framework was established, the uncertainty surrounding capital requirements has receded. This provides the company, in the future, with the opportunity to assess also the granting of guaranteed interest rate contracts if the contract terms and conditions enable returns that are sufficient in relation to the capital requirements for both the shareholders and the policyholders.
The group pension insurance portfolio transferred from Suomi Mutual at the end of 2014 serves to strengthen Mandatum Life’s standing as a life insurance provider for companies. Suomi-Mutual group pension insurance portfolio comprises approximately 2,300 insurance policies and 34,000 insured. In terms of the existing high guaranteed interest rate insurance portfolio, the strategy remains unchanged and the focus is on boosting its declining trend. The transition rules of the Solvency II framework, together with the declining trend of this insurance portfolio, will enable the company to carry out efficient capital management in the future.
Mandatum Life’s result consists of three components: the investment result, risk result and expense result. Mandatum Life’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
Nordea, the largest bank in the Nordic region, has around 11 million customers and is one of the largest universal banks in Europe in terms of total market capitalization. The Nordea share is listed in the Nasdaq Nordic Exchanges in Stockholm, Helsinki and Copenhagen. In Sampo Group’s reporting Nordea is treated as an associate and included in the segment Holding. At the end of 2014 Sampo plc held 21.2 per cent of shares in the Bank.
If P&C’s focus areas remained very much unchanged during 2014, with focus on underwriting excellence and cost efficiency. The company also continued to focus on customer value by offering the best customer experience in all types of contacts. This work has led to an additional improvement in customer satisfaction levels. In addition, customer reviews of If P&C’s claims handling process have improved further from an already high level.
Digitalization is of ever increasing importance and If P&C strives to be the leading company in the digital channels with focus on developing better electronic interfaces as well as simplifying online sales processes. During the year internet sales in the private market continued to increase and approximately one third of claims are now filed online.
In 2014, If P&C continued to leverage its integrated Nordic organization to achieve operational and IT synergies. On-going investments including Nordic IT platforms, digital solutions and automated claims are expected to increase efficiency further. During the year BA Commercial became operational with one IT base system in all four Nordic countries.
Year 2014 was characterized by a challenging environment with low growth, low interest rates as well as increased geopolitical tensions. Despite the headwinds, Nordea showed a robust result with stable income, decreased costs and improved credit quality. The challenging environment signals weaker expectations for a global economic recovery, which also affect the export-oriented Nordic economies.
To enable Nordea to develop even more personalized and convenient services to customers in the future, Nordea is currently simplifying processes in all parts of the bank. Nordea will, as part of this process, build new core banking and payment platforms, significantly increasing agility, scale benefits and resilience.
Nordea’s vision is to be a Great European bank, acknowledged for its people, creating superior value for customers and shareholders. Nordea is making it possible for customers to reach their goals by providing a wide range of products, services and solutions within banking, asset management and insurance. Nordea has around 11 million customers, approximately 700 branch office locations and is among the ten largest universal banks in Europe in terms of total market capitalization. The Nordea share is listed on the Nasdaq Stockholm, Nasdaq Helsinki and Nasdaq Copenhagen exchanges.
Premium income continued to grow in the company’s core businesses, and the company’s unit-linked premiums reached a record-high level. This can be attributed to successful sales work on the part of Danske Bank’s and the company’s own networks. Despite the growth in premium income, the company lost market shares, because the premium income in the sector grew even more substantially.
The year also involved the transfer of a group pension portfolio from Suomi Mutual, with more than 2,000 insurance policies, 30,000 insured and EUR 1,300 million of assets transferred to Mandatum Life. During 2014, Mandatum Life also initiated fund management business especially tailored to meet the needs of institutional customers. Setting up the fund business necessitated changes in Mandatum Life’s corporate structure, resulting in the company establishing an investment services company in Finland and a fund management company and non-UCITS fund in Luxembourg.
Cost effectiveness becomes increasingly important as the weight of unit-linked business grows. The costsavings program initiated two years ago by the company, in conjunction with increased fee and commission income, caused the company’s expense result to rise to an all-time high. The expense result for the next few years is expected to increase, despite the fact that it will be increasingly vulnerable to changes in the investment markets due to the growth in the weight of unit-linked savings.
P&C insurance is Sampo Group’s largest business area employing 91.6 per cent of the personnel in 2014, while life insurance had approximately 7.6 per cent of the work force and the parent company, Sampo plc, 0.8 per cent.
The average number of Sampo Group’s employees (FTE) in 2014 amounted to 6,739 (6,832). In geographical terms Finland had 33 per cent of the personnel, Sweden 27 per cent and Norway 21 per cent. The share of Baltic countries, Denmark and other countries was 19 per cent.
The If Leadership model describes the cornerstones of a well-balanced leadership. If P&C’s leaders should have a high ambition level, be inquisitive and genuine. Setting demanding standards, constantly investigating customer needs and helping others to succeed are important building blocks to ensure good leadership.
Strengthened succession planning for Sampo Group was performed in spring 2014. Short and long-term succession is largely secured via internal candidates both in If P&C and for Sampo Group as a whole. A Future Leadership Program was run in 2014 to further enhance If P&C’s leadership provisioning. This program is a vehicle for recruiting and integrating external high potentials and preparing them for future leadership roles within If P&C.
The If Employeeship model describes the mindset and behaviors needed to secure If P&C’s continuous success. The model emphasizes the employees’ responsibility for their own performance and development. It also focuses on the importance of a strong feedback culture in the company. Large-scale implementation of the Employeeship model has begun in 2014. If P&C invests in coaching for leaders in the organization. For example, every leader (approximately 50 persons) in Contact Center Private in Sweden undertook coaching during the spring of 2014.
Having the most competent insurance professionals in the industry is an important building block in If P&C’s strategy. Competence development is thus highly prioritized. The company is developing easily accessible video courses to replace physical seminars and is complementing larger e-learning modules with shorter e-learning courses, to support, for example, the efficient introduction of new tools.
One of the competitive advantages of If P&C is to realize the synergies between Nordic and Baltic countries. In 2014, the company has accelerated its efforts within cross-border cooperation. For example, over 70 employees in the Baltics are performing tasks for the Nordic part of If P&C. In Gothenburg, over 30 persons are serving Norwegian customers, both with sales and service, and claims handling. Cross-border cooperation allows If P&C to optimize the localization of personnel based on availability of staff and costsaving opportunities.
Managers (male 56.0%, female 44.0%) All employees (male 45.8%, female 54.2%)
If P&C focuses on preventive health care and wellbeing actions to reduce sick leave and disability pensions. For example, the sick leave rate in Finland has decreased over the past five years from 3.7 per cent to 2.7 per cent, while the disability pension category has decreased from five to two. In all Nordic countries, HR works together with leaders on early intervention and follow-up of selected target groups.
Change cChange comparompared ted too prpreevious yvious yearear *Sickness statistics are based on If P&C’s internal reporting standards and may deviate from locally published statistics.
The gender structure of all employees is evenly divided between males and females in Mandatum Life. Among leaders, the majority – 65 per cent – are female.
Gender Structure in Finland (Managers and All Employees) Mandatum Life, 2014
Mandatum Life’s purposeful focus and development on occupational health and preventive health care actions has reduced sickness absence annually since 2011. In 2014 the sickness absence percentage in Finland was 2.7 per cent**). The disability pension category has also decreased from six to two.
**) Sickness statistics are based on Mandatum Life’s internal reporting standards and may deviate from locally published statistics.
Read more about the personnel of Mandatum Life on the Corporate Responsibility page.
The operations of Sampo Group’s insurance subsidiaries If P&C Insurance and Mandatum Life differ significantly from each other and, therefore, the nature of their corporate responsibility activities also differs to a great extent. Hence the subsidiaries have taken care of corporate responsibility activities and corporate responsibility reporting. However, in anticipation of the changing reporting requirements, Sampo has embarked upon a project to develop Group level non-financial reporting.
In 2014 alone, If dealt with more than 1.8 million insurance claims. These vary greatly, ranging from private clients injured in road accidents to companies whose production has been suspended, for example, due to fire. In total, If has paid out over EUR 3 billion in claims over the past year.
Environmental issues are of critical importance to everyone and often have an immediate impact on the operations of the P&C insurance companies. Climaterelated meteorological phenomena, such as heavy rainfalls and flooding, are becoming increasingly common. Populated areas along the coastlines of exposed regions are experiencing frequent flooding.
All of If's activities are governed by a strict environmental policy. The essence of this policy is that If will always endeavor to find the most environmentally viable solution for If, its clients, suppliers and partners.
Share of Online Claim Reports from Business Area Private on a Nordic Level If P&C, 2010–2014
Share of E-invoices in vehicle claims have continued to increase also in 2014. This reduces environmental impact due to decreased paper usage, printing and logistics.
• Motor Norway tested an initiative whereby customers who were claiming on their car insurance had the option of receiving a bicycle which they could keep instead of renting a car while theirs was being repaired. This was a success and 650 bikes were delivered in 7 weeks.
• A collaborative project on climate change adaptation and insurance has developed a web based visualization tool for home owners, called VisAdapt.
• If has changed to more environmentally-friendly multifunctional office machines and decreased the number of machines by 20%.
• We always endeavor to find the best possible environmental solution – for our company, our customers, our suppliers and our partners.
• We give our staff the opportunity to act in an environmentally-friendly way through the provision of guidelines and support.
• We are developing products, processes and loss prevention services in order to help our customers act in a more environmentally-friendly manner.
• We encourage and support our suppliers and partners in their efforts to use more environmentallyfriendly methods in their operations.
If’s environmental program has three levels: • A steering group, led by a member of If’s executive board, sets up and upholds If’s environmental strategy, policies and overall goals.
Strictly defined environmental policies and tools are established to support and lead If’s environmental initiatives. Some of the key policies are: • Environmental policy • Procurement policy in line with Nordic Ecolabel procurement guidelines • Supplier assessment principles • Climate impact accounting tool based on Greenhouse Gas Protocol standard • ClimateWise platform for best practice and exchange of ideas • Environmental rules for claims handling.
Financial responsibility at Mandatum Life means ensuring the continuity, profitability, earnings power and solvency of operations in all market situations. At the heart of financial responsibility lies the sustainable and responsible management of customers’ insurancerelated liabilities and customer investments. A further key component of financial responsibility is careful risk management.
Mandatum Life’s solvency is at a good level and nearly seven times the minimum required solvency margin. Good solvency and profitability mean that Mandatum Life takes care of its customers’ pensions and compensation, whatever the situation or economic environment.
In 2014, Mandatum Life paid out a total of EUR 320 million in pensions to 61,000 pensioners, as well as, other indemnities in case of death, accidents, serious illness and disability, totaling some EUR 90 million. Responsibility towards shareholders can be observed in the aim to provide steady payment of dividends.
As a financial service provider Mandatum Life is a key societal contributor and employer. In 2013, Mandatum Life was the 12th largest corporate tax payer in Finland, paying more than EUR 53.5 million in taxes. Mandatum Life contributes directly to the well-being of Finnish society through the taxes paid on its business profits. The company employs more than 500 people in Finland and the Baltics.
At the core of Mandatum Life’s services is ensuring individuals’ and companies’ financial security: voluntary preparation through risk insurance, increasing wealth through investments, providing security for entrepreneurship, supplementing pension cover, ensuring the competitiveness of Finnish companies and improving the quality of working life.
Social responsibility naturally also entails taking care of employees. Responsibility for our personnel is based on the core of Mandatum Life’s business: improving the financial security of personnel and preparing for health and financial risks – both at the workplace and outside it.
A Growing Number of People Wish to Supplement Their Statutory Social Security
An insurance survey conducted by the Federation of Finnish Financial Services in 2014 revealed that a growing number of Finns consider voluntary insurance necessary for supplementing social security. Although the support network provided by Finnish society is good, a serious illness, disability or death can present a major risk to individual’s finances or those of his or her family. Mandatum Life’s risk insurance increases the customer’s financial security in case of serious illness, disability or death. Voluntary insurance is important as social security is not sufficient to cover a loss in income resulting from an illness, for example.
In order to determine an entrepreneur’s financial risks, a plan is required that takes into account his or her entire life situation and bears in mind any businessrelated risks and the financial security of the entrepreneur and his or her loved ones in preparation for sudden events and retirement.
A key aspect of securing an entrepreneur’s future is taking care of his or her pension security. According to Statistics Finland, around one third of all entrepreneurs are currently over 55 years of age. This means that more than 100,000 entrepreneurs will be retiring within a decade. As the entrepreneur is responsible for his or her personal income during retirement, the amount of YEL earned income based on the Self-Employed Persons Pensions Act has a significant impact on the entrepreneur’s income during retirement. Many entrepreneurs set their YEL earned income at a level that is too low, which can mean an insufficient pension and a significant risk to society.
Companies can affect their competitiveness by investing in their personnel. Personnel are seen still as the largest cost item even though they often have a key impact on the productivity and success of a company. When employees are aware of their own goals and are rewarded for achieving them in a way that is motivating and fair, both the company and personnel flourish.
For good employers, supplementary pensions are not just an additional cost item, but also a way to ensure the well-being of their employees also after their careers have ended. Group pension insurance is the best way to supplement personnel’s pension security. Supplementary pensions are also an effective and motivating part of the employee’s total compensation.
Following changes to the earnings-related pension acts, many companies have wished to extend their pension insurance also to the key personnel, experts and entire staff. This is a way to significantly improve the pension security of Finnish employees.
Mandatum Life also offers companies tools for managing personnel risks. Personnel-related risks can occur throughout the lifecycle of an employment relationship from recruitment to retirement. By preparing for personnel risks, companies can achieve clear cost savings, as it eliminates costs arising from, for example, sick leave, disability pensions or recruiting new employees.
Mandatum Life impacts the financial well-being of its employees by supplementing their pension cover and offering them smart ways to save and increase their wealth.
• The personnel fund offers employees the opportunity to increase their capital through professional investment activities. The personnel fund is an open, transparent and fair solution that aims at long-term benefits. Up to 87 per cent of personnel decided to fund their bonuses in 2014.
The company offers comprehensive occupational health care services that include, among other things, consultations with a work psychologist, regular ergonomic visits to the workplace, specialist services, examinations related to women’s/men’s illnesses and support for returning to work following a long illness. Co-operation with the occupational health care services provider is close and an integral part of employees’ daily lives.
For Mandatum Life, the diversity of personnel is a fundamental pillar that needs to be invested in. The company monitors the results of the Great Place to Work survey, according to which 87 per cent of respondents feel that people are treated equally at Mandatum Life, regardless of gender. The personnel structure of Mandatum Life has, in recent years, consisted equally of men and women. In 2014, the company took part in social media in the international UN Women’s HeForShe campaign, the goal of which is to increase equality between the genders.
35 Corporate Governance Statement 35 Governance Structure 36 Board of Directors 40 Board of Directors' Duties 41 Election and Terms of Office of Board Members 41 Board-Appointed Committees 41 Audit Committee 42 Nomination and Compensation Committee 43 Group Executive Committee 48 Group Executive Committee's Duties 48 Group CEO and President 49 Remuneration 50 Internal Audit 51 Insider Administration 51 External Auditor
BoarBoard of Dird of Directectorsors Sampo plc's Board of Directors, elected annually by the AGM of Sampo plc, uses the highest decision making power in Sampo 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 Association and the decisions of Shareholders Meetings.
The following persons served on Sampo plc's Board of Directors in 2014: Chairman of the BoarChairman of the Boardd Born 1952
• Wahlroos was appointed to the Board of Directors of Sampo plc on 5 April 2001.
Kone Corporation, Board Member; Sanoma Corporation, Board Member; Stora Enso, Board Member; The Research Institute of the Finnish Economy ETLA, Board Member; Finnish Business and Policy Forum EVA, Board Member; Aalto University Foundation, Vice Chairman
Managing DirManaging Directectoror, Signe and Ane G, Signe and Ane Gyllenberyllenberg Fg Foundaoundationtion Born 1961
• Member of the Board of Directors of Sampo plc since 18 April 2013.
PPositions of Tositions of Trusrust, 12/31/2014t, 12/31/2014 3 Scandinavia, Advisor and Executive Board Member; Nasdaq Stockholm, Chairman of the Swedish Listing Committee; Swedish Orphan Biovitrum AB (Sobi), Board Member and Member of the Audit Committee; Swedavia AB, Board Member; AP 7, Vice Chairman of the Board; Madrague Capital Partners AB, Board Member; Alhanko & Johnson AB (BASE 23), Chairman of the Board; Sky, Board Member and Member of the Audit Committee
• Grate Axén holds 3,747 Sampo plc shares directly or through a controlled company.
• Member of the Board of Directors of Sampo plc since 12 April 2012.
• Sørlie holds 2,247 Sampo plc shares directly or through a controlled company.
When elected, all Board members were independent both of company’s major shareholders and of the company.
The Board convened 8 times in 2014. The attendance of Board members at meetings was 100 per cent.
The Board has an Audit Committee and a Nomination and Compensation Committee, whose members it appoints from its midst in accordance with the Charters of the respective committees.
Audit Committee The Audit Committee is responsible for monitoring the statutory auditing and reporting process of the financial statements and consolidated financial statements, and for overseeing the veracity of Sampo Group's financial statements and the financial reporting process.
Committee are the Responsible Auditor, Group CEO, Group CFO, CFO of the most significant subsidiary, Group Chief Audit Executive, the member of the Group Executive Committee responsible for risk control and Group Chief Risk Officer.
In 2014, the Nomination and Compensation Committee comprised the Chairman of the Board (who acted as the Committee's Chairman), the Vice Chairman of the Board and two members elected from among the members of the Board.
The Chairman of the Nomination and Compensation Committee in 2014 was Björn WBjörn Wahlrahlroosoos, and the other members were VVeli-Maeli-Matti Matti Mattilattila, EirEira Pa Palin-Lalin-Lehtinenehtinen and MaMatti Vtti Vuoriauoria.
Nordea Bank AB (publ), Board Member, Board Risk Committee, Chairman; Nokia Corporation, Board Member; The Federation of Finnish Financial Services, Board Member; If P&C Insurance Holding Ltd, Chairman of the Board; Mandatum Life Insurance Company Limited, Chairman of the Board; Finland Chamber of Commerce, Board Member; Niilo Helander Foundation, Board Member; Oy Forcit Ab, Board Member
• Lapveteläinen holds 246,137 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Head of PHead of P&C Insur&C Insurancance;e; MD of If PMD of If P&C Insur&C Insurancance Holding Le Holding Lttdd Born 1963
Head of LifHead of Life Insure Insurancance;e; MD of MandaMD of Mandatum Liftum Life Insure Insurancance Ce Companompany Limity Limiteded Born 1970
Alma Media Corporation, Board Member; BenCo Insurance Holding B.V., Board Member; Federation of Finnish Financial Services, Life Insurance Executive Committee, Member; Kaleva Mutual Insurance Company, Chairman of the Board; Varma Mutual Pension Insurance Company, Board Member
Urzus Group AS, Chairman of the Board; Watercircles Danmark A/S, Board Member; Watercircles Norge AS, Board Member; Watercircles Skandinavia AS, Board Member; The Norwegian Financial Services Association, Member of BRS – Line of Business P&C Board
• Thorsrud holds 29,554 Sampo plc shares directly or through controlled companies or persons closely associated with him.
• Wennerklint holds 32,061 Sampo plc shares directly or through controlled companies or persons closely associated with him.
In 2014, the Group Executive Committee convened four times at the request of Group CEO. The Group MD Committee, which assists the Group Executive Committee, met nine times.
However, at the request of Sampo's Board of Directors, Kari Stadigh will continue as Group CEO and President from January 2016 until further notice.
Remuneration Report Sampo has published a Remuneration Report on its website in accordance with section 7 (Remuneration) of the Corporate Governance Code.
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 CEO and Deputy CEO.
Members of the Group Executive Committee are also participating in the long-term incentive programs 2011 I and 2014 I for Sampo's management. The terms of the incentive programs are available on Sampo's website.
More detailed information on compensation in Sampo Group during 2014 is available at the Remuneration Report published by Sampo.
In its auditing work, the Internal Audit complies with, in addition to the Internal Audit Charter approved by
Sampo Group's Guidelines for Insiders are stricter than the above-mentioned 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 Sampo’s publicly listed subsidiary or affiliate company (currently Nordea AB (publ.) and Topdanmark A/S).
Sampo plc's insider guidelines and register may be viewed on Sampo's website.
61 Life Insurance 63 Holding 64 Governance 64 Administration 64 Changes in Group Structure 64 Annual General Meeting 65 Corporate Responsibility 65 Personnel 66 Remuneration 67 Risk Management 67 Shares, Share Capital and Shareholders 67 Shares and Share Capital 69 Authorizations Granted to the Board 69 Shareholders 71 Financial Standing 71 Internal Dividends
The Board proposes to the Annual General Meeting to be held on 16 April 2015 a dividend of EUR 1.95 per share (1.65) and an authorization to repurchase a maximum of 50 million Sampo A shares. The proposed dividend payment amounts in total to EUR 1,092 million (924).
The profit before taxes for the P&C insurance amounted to EUR 931 million (929). Combined ratio for the full year 2014 amounted to 87.7 per cent (88.1). Return on equity (RoE) decreased to 18.1 per cent (24.4). Adjusted for currency gross written premiums grew 1.7 per cent. The contribution of Topdanmark’s net profit for 2014 amounted to EUR 53 million (52).
Sampo’s share of Nordea’s net profit for 2014 amounted to EUR 680 million (635). Nordea’s RoE was 11.5 per cent (11.0) and core Tier 1 ratio (excluding transition rules) strengthened to 15.7 per cent (13.9). In segment reporting the share of Nordea’s profit is included in the segment ‘Holding’. Nordea’s Board of Directors proposes to the AGM 2015 a dividend of EUR 0.62 per share (0.43). If the AGM approves the Board’s dividend proposal, Sampo plc will receive a dividend of EUR 533 million from Nordea on 30 March 2015.
Sampo Group’s solvency capital exceeded the minimum solvency requirements at the end of 2014 by EUR 4,282 million (3,935) and the conglomerate solvency ratio stood at 187.4 per cent (184.4).
Income statement items are compared on a year-on-year basis and comparison figures for balance sheet items are from 31 December 2013 unless otherwise stated.
Balance sheet (at the end of period) 9.3930 9.1465 9.1762 8.9483 8.8591
Balance sheet (at the end of period) 1.2616 1.2289 1.2308 1.1986 1.1877
Balance sheet (at the end of period) 1.0388 1.1266 1.0920 1.0840 1.0593
ANNUANNUAL REPORT 2014AL REPORT 2014 BoarBoard of Dird of Directectors' Rors' Reporteport
P&C Insurance If P&C is the leading property and casualty insurance group in the Nordic region, with insurance operations that also encompass the Baltic countries. 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 and the Baltic countries. If’s operations are divided into four business areas: Private, Commercial, Industrial and Baltic. The Danish insurance company Topdanmark is If P&C's associated company.
Technical result decreased to EUR 588 million (601) for the full year 2014, due to the weakening of Norwegian and Swedish kronas and the lower interest rates. Technical result for Private business area decreased to EUR 349 million (360) and for business area Commercial to EUR 153 million (166). Technical result for Industrial and Baltics increased to EUR 51 million (43) and EUR 17 million (15), respectively. Insurance
Cost ratio improved to 22.5 per cent (22.8) and expense ratio to 16.7 per cent (16.8) as a result of the adoption of continuous cost efficiency measures.
Investment Allocation If P&C, 31 December 2014, total EUR 11.5 billion
Duration for interest bearing assets was 1.0 year (1.3) and average maturity 2.4 years (2.3). Fixed income running yield as at 31 December 2014 was 2.4 per cent (2.9).
Topdanmark has a profit distribution policy according to which it does not pay dividends but buys back its own shares in the market. If P&C has not bought Topdanmark’s shares since May 2011, but as it 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.
In Sampo Group’s segment reporting Topdanmark holding is included in the P&C insurance segment. Due to the late publication of financial reports by Topdanmark, consensus estimate for the company’s profit is used as a basis of calculating If P&C’s share of Topdanmark’s profit. Any deviation from the actual reported profit will be corrected in Sampo Group’s next quarterly report.
In Sampo Group’s 2014 accounts the contribution of Topdanmark’s net profit amounted to EUR 53 million (52). If P&C’s solvency capital on 31 December 2014 includes the proportion of Topdanmark’s solvency capital corresponding to If P&C’s holding.
The following text is based on Nordea’s full-year 2014 result release published on 28 January 2015.
Despite a challenging environment with low growth, low interest rates and increased geopolitical tensions, Nordea delivered a robust result with stable revenues, decreased costs and improved credit quality.
Total income was up 2 per cent in local currencies (largely unchanged in EUR) compared to last year, excluding nonrecurring items, and operating profit was up 12 per cent in local currencies (+9 per cent in EUR) compared to last year excluding non-recurring items.
Net loan loss provisions decreased to EUR 534 million, corresponding to a loan loss ratio of 15 basis points (21 basis points last year).
Nordea’s cost efficiency programme is progressing as planned and the net cost reduction effects are expected to accelerate during 2015. An annualized gross reduction in total expenses of EUR 65 million has been conducted in the fourth quarter and EUR 415 million from the beginning of 2013. The focus on capital management will continue.
For more information on Nordea Bank AB and its results for 2014, see www.nordea.com.
Life Insurance Mandatum Life Group comprises Mandatum Life Insurance Co. Ltd., a wholly-owned subsidiary of Sampo plc, operating in Finland, and its five subsidiaries. Parent company, Mandatum Life, is responsible for sales functions and all the functions required by the Insurance Companies Act. The subsidiaries are Mandatum Life Services Ltd, Mandatum Life Investment Services Ltd., Mandatum Life Fund Management S.A., Innova Services Ltd. and Mandatum Life Insurance Baltic SE.
Life insurance operations reported for 2014 profit before taxes of EUR 163 million (153). The total comprehensive income for the period reflecting the changes in market values of assets was EUR 149 million (220). Return on equity (RoE) amounted to 11.4 per cent (18.3).
Mandatum Life Group’s investment assets, excluding the assets of EUR 5.3 billion (4.6) covering unit-linked liabilities, amounted to EUR 6.6 billion (5.5) at market values as at 31 December 2014.
Mark-to-market return on investments in 2014 was 4.6 per cent (7.1). At the end of December 2014 duration of fixed income assets, excluding the segregated portfolio, was 1.6 years (1.8) and average maturity 1.9 years (2.2). Fixed income running yield was 3.1 per cent (3.7). For the segregated portfolio the duration was 2.4 years and average maturity 1.9 years.
Net investment income, excluding income on unit linked contracts, decreased to EUR 273 million (298). Net income from unit-linked contracts was EUR 267 million (270). In 2014, fair value reserve remained almost unchanged at EUR 508 million (492).
Mandatum Life Group’s solvency margin clearly exceeded Solvency I requirements and the solvency capital amounted to EUR 1,463 million (1,403) as at 31 December 2014. The solvency ratio was 22.9 per cent (27.6). The decrease in solvency ratio based on Solvency I requirements was due to the portfolio transfer from Suomi Mutual.
Total technical reserves of Mandatum Life Group increased to EUR 10.4 billion (8.5). The unit-linked reserves grew to EUR 5.3 billion (4.6) at the end of 2014, which corresponds to 51 per cent (54) of total technical reserves. Because of the portfolio transfer from Suomi Life, the with profit reserves increased during 2014 and amounted to EUR 5.1 billion (3.9) at the end of 2014. Excluding the portfolio transfer the with profit reserves decreased EUR 199 million in 2014.
The discount rate used to discount all with profit liabilities excluding the segregated fund, have been lowered to 2.0 per cent for 2015 and 3.0 per cent for 2016. For this purpose a reserve of EUR 135 million has been established.
Allocation of Assets of the Segregated Portfolio 31 December 2014, total EUR 1.3 billion
Holding Sampo plc owns and controls its subsidiaries engaged in P&C and life insurance. In addition Sampo plc held on 31 December 2014 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.
Markets Act (746/2012), chapter 7, section 7. The Corporate Governance Statement will be published in connection to the Annual Report in March 2015. The statement will be available at www.sampo.com/ statement. The Governance section of this Annual Report also contains a more detailed description of the Group’s governance system.
The Annual General Meeting re-elected all the eight members to the Board. The following members were re-elected to the Board of Directors: Anne Brunila, Jannica Fagerholm, Adine Grate Axén, Veli-Matti Mattila, Eira Palin-Lehtinen, Per Sørlie, Matti Vuoria and Björn Wahlroos.
160,000 per year, the Vice Chairman EUR 100,000 per year and the other members EUR 80,000 per year. A Board member shall in accordance with the resolution of the Annual General Meeting acquire Sampo plc’s A shares at the price paid in public trading for 50 per cent of his/her annual fee excluding taxes and similar payments. Board fees have remained unchanged since 2008.
If P&C endeavors to take its social responsibility beyond its business operations. Its principal objective is to constantly act in a manner that satisfies or exceeds the ethical, legal and commercial requirements placed upon the business.
Financial responsibility means ensuring the continuity, profitability, earnings power and solvency of operations in Sampo Group companies in all market situations. A further key component of financial responsibility is careful risk management. Further information on risk management in Sampo Group is available in the Risk Management section of this Annual Report.
In geographical terms Finland had 33 per cent of the personnel, Sweden 27 per cent and Norway 21 per cent. The share of Baltic countries, Denmark and other countries was 19 per cent.
The total number of staff in life insurance decreased slightly as the number of employees decreased in all of the three Baltic countries. Life insurance operations employed 509 persons at the end of 2014. As of 31 December, the total number of staff in Sampo Group totaled 6,723 persons.
In 2014 EUR 26 million (27), including social costs, was paid on the basis of the long-term incentive scheme 2011:1. EUR 33 million (34), including social costs, was paid as short-term incentives during the same period. The outcome of the long-term incentive schemes is determined by Sampo’s share price development over
Group. The total number of participants in the scheme is approximately 120. The scheme complies with the updated Sampo Remuneration Principles, which the Board of Directors approved on the same day and the remuneration policies of the different Sampo Group companies in force at the launch of the scheme.
A more detailed description of Sampo Group’s risk management activities, governance, risks and capitalization is available in the Risk Management section.
Shares and Share Capital As at 31 December 2014, Sampo plc had 560,000,000 shares, which were divided into 558,800,000 A shares and 1,200,000 B shares. Total number of votes attached to the shares is 564,800,000. Each A share entitles the holder to one vote and each B share entitles the holder to five votes at the General Meeting of Shareholders. According to the company’s Articles of Association, A Shares must number at least 179,000,000 and no more than 711,200,000.
The holdings of nominee-registered and foreign shareholders grew to 59.84 per cent (56.79) of the shares and 59.33 per cent of the votes (56.31).
Nominee registered total 327,807,185 58.54 58.04 *) 3,800,000 A shares and 1,200,000 B shares
On 19 May 2014 Sampo received a notification of change in holdings pursuant to Chapter 9, Section 5 of the Securities Markets Act, according to which the total number of Sampo A shares and related voting rights owned by BlackRock, Inc. (tax ID 32-0174421) had on 19 May 2014 risen above five (5) per cent of Sampo plc's entire stock and voting rights. Blackrock’s holding amounted to 5.08 per cent of the capital and 5.03 per cent of votes.
Shareholders by Sector Sampo plc (A and B shares), 31 December 2014
The members of the Group Executive Committee and their close family members owned either directly or indirectly 793,741 (733,626) Sampo A shares representing 0.1 per cent (0.1) of the share capital and related votes.
GrGroup Exoup Executivecutive Ce Committommitteeee 31 Dec 201431 Dec 2014 31 Dec 201331 Dec 2013
A planned dividend of EUR 100 million has already been deducted in Mandatum Life’s solvency calculation as at 31 December 2014. The dividend will be paid during the first quarter of 2015. If P&C normally pays its dividend towards the end of the calendar year.
Group solvency has in 2014 been calculated according to Chapter 3 of the Act on the Supervision of Financial and Insurance Conglomerates (2004/699). The Act is based on Directive 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment.
Group solvency ratio (own funds in relation to minimum requirements for own funds) strengthened further during 2014 and amounted to 187.4 per cent (184.4) as at 31 December 2014.
In addition to the aforementioned conglomerate solvency considerations, Sampo Group’s solvency is assessed internally by comparing the capital required to the capital available. Capital requirement assessment is based on an economic capital
framework, in which Group companies quantify the amount of capital required for measurable risks over a one year time horizon at 99.5 per cent’s confidence level. In addition to economic capital, companies assess their capital need related to non-measurable risks like risks in business environment.
The economic capital tied up in Group’s operations on 31 December 2014 was EUR 5,510 million (5,361) and adjusted solvency capital was EUR 9,100 million (9,417).
As at 31 December 2014 financial liabilities in Sampo plc’s balance sheet consisted of issued senior bonds and notes of EUR 1,888 million (1,720) and EUR 305 million (308) of outstanding CPs issued. The average interest on Sampo plc’s debt as of 31 December 2014 was 1.74 per cent (2.26).
Senior Bond 2,000 SEKm (EMTN) Stibor3M + 0.75% - 1.0210% 28.5.2015
Senior Bond 300 EURm (EMTN) 4.2500% Euribor3M + 1.4727% 1.5537% 22.2.2016
OutlookOutlook Outlook for 2015 Sampo Group’s business areas are expected to report good operating results for 2015.
However, the mark-to-market results are, particularly in life insurance, highly dependent on capital market developments. The continuing low interest rate level also creates a challenging environment for reinvestment in fixed income instruments.
The Major Risks and Uncertainties to the Group in the Near-term In its day-to-day business activities Sampo Group is exposed to various risks and uncertainties which it identifies and assesses regularly.
Major risks affecting the Group’s profitability and its variation are market, credit, insurance and operational risks that can be quantified in most of the cases by financial measurement techniques based on historical data. Currently their quantified contributions to the Group’s Economic Capital - used as an internal basis for capital needs – represent normal levels of 34 per cent, 44 per cent, 11 per cent and 10 per cent, respectively.
Dividend PrDividend Proposaloposal According to Sampo plc’s dividend policy, total annual dividends paid shall be at least 50 per cent of the Group’s net profit for the year (excluding extraordinary items). In addition, share buy-backs can be used to complement the cash dividend.
The parent company’s distributable capital and reserves totaled EUR 6,908,853,083.44, of which profit for the financial year was EUR 1,049,724,795.16.
The Board proposes to the Annual General Meeting a dividend of EUR 1.95 per share to company’s 560,000,000 shares. The dividends to be paid are EUR 1,092,000,000.00 in total. Rest of funds are left in the equity capital.
Return on assets (at fair values) % 5.65.6 7.0 9.3 3.7 10.0
Premiums written before reinsurers' share EURm 4,6344,634 4,768 4,698 4,414 4,189
Return on equity (at fair values) % 18.118.1 24.4 36.9 12.4 39.8
Return on equity (at fair values) % 11.411.4 18.3 28.5 -11.7 36.2
Adjusted number of shares at 31 Dec. 1,000 558,800558,800 558,800 558,800 558,800 560,082
+ holding business profit before taxes ± Group elimination items with result impact
± valuation differences on investments less deferred tax (average of values on 1 Jan. and 31 Dec.)
Average number of staff Average of month-end figures, adjusted for part-time staff
+ subordinated loans deferred tax liability probably realised in near future (incl. deferred tax from fair value reserve and profit)
Equity per share equity attributable to the parent company‘s equity holders adjusted number of shares at balance sheet date
As a Nordic insurance group If P&C underwrites policies that cover various risks of individuals and corporations on a geographically diverse area. If P&C mainly underwrites risks in the Nordic and Baltic countries but it underwrites also policies for Nordic clients’ activities outside the Nordic countries. In addition to geographical diversification, the business is well-diversified over lines of business. Mandatum Life operates in Finland and in the Baltic countries and offers savings and pension policies with life risk features as well as policies covering mortality, morbidity and disability risks.
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 as the dividend distributions of the subsidiaries and the parent 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.
Strategic risk is the risk of losses due to changes in the competitive environment or lack of internal operational flexibility. Unexpected changes in general business environment can cause larger than expected fluctuations in financial results and in the long run they can endanger the existence of Sampo Group’s business models. External drivers behind such changes are various, including for instance general economic development, development of the institutional environment and technological
Due to the predominantly external nature of the drivers of and development in the competitive environment strategic risks are the responsibility of the executive level senior management. Proactive strategic decision-making is the central tool in managing strategic risks related to competitive advantage. Also, maintenance of internal operational flexibility to be able to adjust the business model and cost structure when needed is an efficient tool in managing strategic risks. Although strategic risks are not covered by the economic capital model in Sampo Group they may, however, have an effect on the amount of actual capital base, if deemed prudent in existing business environment.
Reputational risk refers to the risk that adverse publicity regarding the company’s business practices or associations, whether accurate or not, causes a loss of confidence in the integrity of the institution. Reputational risk is often a consequence of a materialized operational or compliance risk and realizes often as a deterioration of reputation amongst customers and other stakeholders. However, reputational risk is related to all other activities as well as shown in the figure Classification of Risks in Sampo Group. Because the roots of reputational risk are various, the tools to prevent it must be diverse and embedded in the corporate culture.
In general concentration risks arise when the company’s risk exposures are not diversified enough, and as a result for instance an individual claim or financial market event could threaten the solvency or the financial position of the company.
Concentration risk may materialize indirectly also when profitability and capital position react similarly to general economic development or to structural changes in institutional environment in different areas of business. This kind of indirect concentration risk can be seen as part of strategic risk.
ApprAppropriaopriatte selection and pricing of underwritinge selection and pricing of underwriting riskriskss
CarCareful selection and eeful selection and exxecution of inecution of invvesestmenttment trtransactionsansactions
• Counterparty default risks are mitigated by selecting counterparties carefully, using collaterals and assuring adequate diversification.
• High quality and cost efficient business processes are maintained, continuity of operations is planned and recovery is ensured.
EffEffectivective management of ine management of invvesestment portftment portfolios andolios and balancbalance sheete sheet
• Balance between expected returns and risks in investment portfolios and the balance sheet is optimized, taking into account the features of insurance liabilities, internally assessed capital needs, regulatory solvency and asset coverage rules and rating requirements.
• Liquidity risks are managed by having adequate portion of investments in liquid instruments. The portion is mainly dependent on the features of liabilities.
At group level the risk management focus is on group wide capitalization and liquidity. It is essential to identify potential risk concentrations and to have a thorough understanding of how reported profits of companies would behave under different scenarios in general. These concentrations and correlations may have an effect on group level capitalization and liquidity buffers as well as on group level management actions.
When the above-mentioned core activities are successfully implemented, a balance between earnings, risks and capitalization can be achieved on a company and group level and shareholder value can be created.
When Sampo Group is organizing its business activities, clear responsibilities and simple and flat operational structures are the profound principles. The responsibilities and operational structures are described in the following paragraphs as illustrated in the following figure.
Parent Company's Guidance The Group’s parent company Sampo plc steers the subsidiaries by setting targets for their capitalization and return on equity (RoE) and by defining main preconditions for the subsidiaries’ operations in the form of the group wide principles.
TTararget Setting:get Setting: The Board of Directors of the parent company decides on the subsidiaries’ return on equity targets which are currently 17.5 per cent for both If P&C and Mandatum Life. In addition, If P&C has a long-term target of maintaining the combined ratio below 95 per cent.
Moreover, the external regulatory environment and expectations of different stakeholders on Sampo Group’s operations impact Sampo plc’s Board of Directors’ decisions in general and thereby also the guidance given by the parent company. Further information on Sampo Group’s stakeholders is available at Code of Conduct at www.sampo.com/ steeringsystem.
Since only the main guidelines are prepared by the parent company, the subsidiaries’ managements have the power and responsibility to incorporate the specific characteristics of their own operations to the company specific policies, limits, authorizations and guidelines.
The risk management process consists of continuous activities that are partly a responsibility of the
Parties independent of business activities are responsible for the risk management governance framework, risk policies, risk limits and authorizations which form the structure that sets the limits for business and investment units’ risk taking and principles for risk monitoring. These structures are one prerequisite for the risk management process and they reflect capital adequacy targets and risk appetite in general.
The central prprererequisitequisiteses for facilitating successful risk management include the following: • Risk management governance structure and authorizations (see Risk Governance section) and clear division of responsibilities between business lines and independent functions
The tasktaskss included in the risk management process can be classified as follows: Independent measurIndependent measurement and cement and controntrolol
• Internal reporting on Economic Capital and Adjusted Solvency Capital at least on a quarterly basis
Actions, i.e. transactions representing the actual insurance and investment operations are performed in accordance with the given authorizations, risk policies and other instructions. These actions are the responsibility of business and centralized functions such as the investment unit. Activities related to capitalization and liquidity positions are included in this part of the process. In Sampo Group, proactive actions to manage profitability, risks and capital are seen as the most important phase of the risk and capital management process. Hence, risk policies, limits and decision making authorizations are set up in a way that they, together with profitability targets, facilitate business and investment units to take carefully considered risks. These actions can be seen for example as the following outputs: • Pricing of insurance policies and execution of investment asset transactions
High quality execution of the tasks above contributes to the achievement of the three central tartargetsgets of the risk management process: BalancBalance betwe between riskeen risks, capital and earningss, capital and earnings
• Capitalization is adequate in terms of risks inherent in business activities and strategic risks, taking into account the expected profitability of the businesses. Risk bearing capacity is allocated to different business areas in accordance with the strategy.
• Underwriting risks are priced reflecting their inherent risk levels, expected returns of investment activities are in balance with their risks, and consequential risks are mitigated sufficiently.
CCosost efficient and high quality prt efficient and high quality prococesessesses
• Continuity of operations is ensured and in case of discontinuity events recovery is fast and comprehensive.
• External risk drivers and potential strategic risks are identified and the company is in a good position, in terms of capital structure and management skills, to react to changes in business environment.
Parent Company’s Oversight and Activities Sampo plc reviews the Group as a business portfolio and is active especially in matters related to the Group’s capitalization and risks as well as related to the parent company’s capital structure and liquidity.
Parent company Sampo plc reviews the performance of Sampo Group both on company level and on group level based on the reporting provided by the subsidiaries and the associated company Nordea Bank AB. The information on Nordea Bank AB is, however, based on publicly available material and is therefore less detailed. Reporting on the subsidiaries’ performance to the Board of Directors and Audit Committee of Sampo plc is based mainly on the reporting produced by the subsidiaries. The reporting concentrates particularly on the balance between risks, capitalization and profitability. The parent company Sampo plc is responsible for reporting on its own activities.
Risk Governance This section describes Sampo Group’s and its subsidiaries’ governance framework from a risk management perspective. A more detailed description of Sampo Group’s corporate governance and internal control system is included in the Corporate Governance section.
The responsibility to identify, evaluate, control and manage risks lies within the line organization. There are separate committees in place for key risk areas and they have the responsibility to monitor that risks are managed and controlled as decided by the Boards of Directors. The risk committees in If P&C do not have a decision mandate. The duties of these Committees are described later in the respective chapters discussing each relevant risk.
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.
The Managing Director of Mandatum Life has the overall responsibility for the risk management according to Board of Directors’ instructions. Managing director is the Chairman of the Risk Management Committee (RMC) that coordinates and monitors all risks in Mandatum Life. Risks are divided into main groups which are insurance, market, operational, legal and compliance risks as well as business and reputation risks. Each risk area has its own specialized committee or unit and a responsible person in the RMC.
In addition to the risk specific committees, the duties related to compliance and risk management of the Baltic subsidiary have been organized as follows: • The Legal and Compliance Unit is taking care of compliance matters and Head of the Unit is a member of the Risk Management Committee.
Internal Audit with its audit recommendations has a role to ensure that adequate internal controls are in place and provides Internal Audit’s annual review to the Board of Directors.
The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The Board of Directors of the parent company defines financial and capitalization targets for the subsidiaries and approves group level principles steering the subsidiaries’ activities as described in section Sampo Group Steering Principles and Risk Management Process. The risk exposures and capitalization reports of the subsidiaries are consolidated at 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 Group.
Underwriting RiskUnderwriting Riskss 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.
Premium risk relates to future claims resulting from expected insured events which have not occurred by the balance sheet date. The frequency, severity and timing of insured events and hence future claims may differ from those expected. As a result the claims cost for future claims exceeds the expected level and there is a loss or adverse changes in the value of insurance liabilities.
Catastrophe risk can be seen as an extreme case of Premium risk. It is the risk of low frequency, high severity extreme or exceptional events, such as natural catastrophes whose pricing and setting of provisioning assumptions include significant uncertainty. These events may lead to significant deviations in actual claims from the total expected claims resulting into a loss or adverse changes in the value of insurance liabilities.
Committee is responsible for monitoring compliance with the established underwriting principles.
The insurance portfolio is well diversified, given the fact that If P&C has a large customer base and the business is underwritten in different geographical areas and across several lines of business. 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, 2014.
Sensitivity of underwriting result and hence underwriting risk is presented by changes in certain key figures in the table Sensitivity Test of Underwriting Result, If P&C, 31 December 2014 and 31 December 2013.
Combined ratio, business area Industrial 89.0% +/- 1 percentage point +/- 5 +/- 5
Net claims incurred 3,162 +/- 1 per cent +/- 29 +/- 32
Reserve risk relates to incurred claims, resulting from insured events which have occurred at or prior to the balance sheet date. The final amount, frequency and timing of claims payments may differ from those originally expected. As a result technical provisions are not sufficient to cover the cost for already incurred claims and there is a loss or adverse changes in the value of insurance liabilities.
In financial accounting the technical provisions includes, in addition to the above described provisions for claims outstanding, the provisions for unearned premiums. 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.
Reserve risk includes revision risk, which is defined as the risk of loss, or of adverse change in the value of insurance and reinsurance liabilities, resulting from fluctuations in the level, trend, or volatility of revision rates applied to annuities, due to changes in the legal environment or in the state of health of the person insured.
The Board of Directors of If P&C decides on the guidelines governing the calculation of technical provisions. If P&C’s Chief Actuary is responsible for developing and presenting guidelines on how the
Sensitivity Test of Underwriting Result If P&C, 31 December 2014 and 31 December 2013
The actuarial estimates are based on existing exposures and historical claims data that are available at the balance sheet date. Factors that are monitored include loss development trends, the level of unpaid claims, changes in legislation, 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.
Technical provisions and the economic durations 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 2014.
Technical Provisions by Line of Business and Major Geographical Area If P&C, 31 December 2014
From 2014 onwards the estimated share of claims provision to future annuities are included in the life expectancy increase sensitivity.
Biometric risks refer 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.
events, usually over short period of time and, albeit even less frequently, longer lasting events. When a low frequency, high severity event or series of single events leads to a significant deviation in actual benefits and payments from the total expected payments, catastrophe, i.e. an extreme case of biometric risk, risk has realized.
Long duration of policies and restriction of Mandatum Life’s right to increase tariffs increases biometric risks. If the premiums turn out to be inadequate and cannot be increased, technical provisions have to be supplemented with an amount corresponding to the increase in expected losses.
The annual longevity risk result and longevity trend is analyzed regularly. For the segregated group pension portfolio the assumed life expectancy related to the technical provisions was revised in 2014 and for the other group pension portfolios in 2002 and 2007. In total these changes increased the 2014 technical provision by EUR 108 million (EUR 23 million in 2013) including EUR 87 million longevity reserve for segregated group pension portfolio. The cumulative longevity risk result has been positive since these revisions. The longevity risk result of group pension for the year 2014 was EUR 3.8 million (EUR 0.6 million in 2013). The segregated group pension portfolio did not yet have an effect on the 2014 risk result.
The company is also exposed to expense risk, which 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.
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 a competitive level. In year 2014, expense result was EUR 19 million (EUR 14 million in 2013). Mandatum Life does not defer insurance acquisition costs.
The guaranteed interest for the segregated group pension policies is mainly 3.5 per cent. The technical provision corresponding this portfolio has been supplemented with a discount rate reserve of EUR 241 million, resulting in a discount rate of 1.0 per cent for the technical provision. Reserve for future bonuses has important role in risk management of segregated group pension portfolio. The reserve amounts to EUR 181 million and approximately EUR 150 million of it can be used to cover possible investment losses or to finance possible changes in discount rate of segregated technical provisions.
In most of the other with profit policies, the guaranteed interest rate is 3.5 per cent. In individual policies sold in Finland before 1999, the guaranteed interest rate is 4.5 per cent, which is also the statutory maximum discount rate of these policies. With respect to these policies, the maximum discount rate used when discounting technical provisions has been decreased to 3.5 per cent. As a result, technical provisions have been supplemented with EUR 69 million in 2014 (EUR 75 million in 2013). In addition, EUR 50 million has been reserved to lower the interest rate of with profit liabilities to 2.0 per cent in 2015 and EUR 17 million for the year 2016 to lower the interest rate of with profit liabilities to 3.0 per cent, i.e. Mandatum Life has set up an extra reserve of EUR 135 million as part of technical provisions.
WWith prith profit and others tofit and others totalotal 3,9103,910 146146 -395-395 -35-35 131131 00 1,2051,205 5,0475,047 4949
Individual pension insurIndividual pension insurancancee 1,1411,141 1717 -162-162 -6-6 4545 00 33 1,0381,038 1010
Individual lifIndividual life insure insurancancee 233233 3232 -29-29 -10-10 88 00 -16-16 218218 22
The table Expected Maturity of Insurance and Investment Contracts before Reinsurance, Mandatum Life, 31 December 2014 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.
Development of With Profit and Unit-linked Technical Provisions Mandatum Life, 2005-2014
WWith prith profit and others tofit and others totalotal 10.010.0 1,0321,032 832832 1,5851,585 1,1151,115 787787 541541 805805
GrGroup pension insuroup pension insurancancee, segr, segregaegatted portfed portfolioolio 11.111.1 175175 164164 358358 287287 218218 155155 210210
Individual lifIndividual life insure insurancancee 9.39.3 5858 4949 6868 4646 3333 2424 3636
Subsidiary SE Sampo LifSubsidiary SE Sampo Life Insure Insurancance Baltice Baltic 1616 2222 3535 2020 3535 1717 4949
The Insurance Risk Committee is responsible for maintaining the Underwriting Policy and monitoring the functioning of the risk selection and claims processes. The Committee also reports all deviations from the Underwriting Policy to the RMC. The Insurance Risk Committee is chaired by the Chief
Actuary who is responsible for ensuring that the principles for pricing policies and for the calculation of technical provisions are adequate and in line with the risk selection and claims processes.
Reinsurance is used to limit the amount of individual mortality and disability risks. The Board of Directors annually approves the Reinsurance Policy and determines the maximum amount of risk to be retained on the company’s own account, which for Mandatum Life is EUR 1.5 million per insured. To mitigate the effects of possible catastrophes, Mandatum Life participates in the catastrophe reinsurance bought jointly by Finnish life insurance companies.
InInvvesestment Ptment Portfortfolio Markolio Market Risket Riskss In general, market risks refer to fluctuations in the financial results and capital base caused by changes in market values of financial assets and liabilities as well as economic value of insurance liabilities. The changes in market values and economic values are caused by movements in underlying market variables such as interest rates, inflation, foreign exchange rates, credit spreads and equity prices.
The risks caused by changes in interest rates, foreign exchange rates and inflation together with general trend of credit spreads and equity prices are defined as general market risks and managed by allocation limits and other risk limits. When the risk is related to debt and equity instruments issued by a specific issuer, it can be defined as issuer specific market risk that is managed by issuer specific limits. Furthermore, market risks include also risk of worsening market liquidity in terms of widening bid-ask spreads and the risk of unexpected changes in repayment schedules of assets. In both cases the market values of financial instruments in investment portfolios may change.
In Sampo Group, performance and market risks related to investment portfolios are mostly straightforward to analyse and manage. The realization of risks is transparently reflected in the financial statements, because Sampo Group is applying mark-to-market procedures to most of its investments and only seldom there are instruments that require mark-tomodel procedures.
Investments (excluding Mandatum Life’s investments covering unit-linked policies) are managed according to the subsidiaries’ Investment Policies that are based on the features of insurance liabilities and solvency.
The investment portfolios are reported on fair value basis. 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 Sampo Group Financial Statements.
Sampo Group has a thorough understanding of the Nordic markets and issuers and consequently Sampo Group’s direct investments are mainly made in Nordic securities. Mandatum Life’s direct investments are mainly denominated in euro and in companies geographically located in Finland and selectively in other countries, whereas, If P&C has the major part of its direct investments denominated in the Scandinavian currencies and in the respective countries. Through effective differentiation in asset selection concentration risk is proactively managed.
The external asset managers and funds managed by them are selected for both companies by the same members of Sampo Group’s Investment Unit. The funds are mostly allocated to areas outside the Nordic countries. Consequently, the risk of unidentified or unwanted concentrations is relatively low.
The ICC is responsible for monitoring the implementation of and compliance with the Investment and Asset Coverage Policies. The committee shall consider and propose changes to the policies. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
Development of Investment Portfolios If P&C, Mandatum Life and Sampo plc, 31 December 2014 and 31 December 2013
Life has had on average higher returns and higher volatility. The figure Annual Investment Returns at Fair Values, If P&C and Mandatum Life, 2004–2014 presents the historical development of investment returns.
Composition of Investment Portfolio Mandatum Life’s Segregated Group Pension Portfolio, 31 December 2014
Mandatum Life, Sampo plc and Sampo Group as of year-end 2014 are presented in the table Investment Allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2014.
Investment Allocation If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2014
Parent company Sampo plc’s asset portfolio is a liquidity reserve including mainly short-term money market instruments and hence its market risks are limited. Interest rate risk arising from gross debt and the liquidity reserve is Sampo plc’s most significant market risk together with refinancing risk related to gross debt. Most of the parent company’s debt is tied to short-term reference rates as a consequence of interest rate swaps used. This mitigates group level interest rate risk because, while lower interest rates would reduce subsidiaries’ investment returns in the long-term, the interest expense in the parent company would also be lower.
Fixed income investments and listed equity instruments form major part of the subsidiaries’ investment portfolios. Money market securities, cash and investment grade government bonds form a liquidity buffer within fixed income investments. The average maturity of fixed income investments was 2.4 years in If P&C and 1.9 years in Mandatum Life.
Both If P&C and Mandatum Life are exposed to interest rate and currency risks (general market risks) as well as to equity and spread risks.
Interest Rate and Currency Risks Market participants are continuously reacting to reported macro-economic data and information regarding financial market and commercial cash flows as well as to various events and market rumours. Hence, risk factors affecting interest rates and foreign exchange rates are many.
Interest rate sensitivity in terms of the average duration of fixed income investments was in If P&C 1.0 years and in Mandatum Life 1.8 years. These duration figures include the effect of hedging derivatives.
Currency risk can be divided into transaction and translation risk. Transaction risk refers to currency risk arising from contractual cash flows in foreign currencies related to insurance activities, investment operations and foreign exchange transactions. Hence, transaction risk includes various balance sheet items. In Sampo Group the net foreign currency exposure is considered as a separate asset class and it is managed within investment portfolio activities. Open transaction risk positions are identified and measured separately for each subsidiary. The net position in each currency consists of the assets, liabilities and foreign exchange transactions denominated in the particular currency.
If P&C writes insurance policies that are mostly denominated in the Scandinavian currencies and in euro. In If P&C, the transaction risk is reduced by matching technical provisions with investment assets in the corresponding currencies or by using currency derivatives.
BaseBase CurrCurrencencyy EUREUR USDUSD JPJPYY GBPGBP SEKSEK NOKNOK CHFCHF DKKDKK LLTLTL OtherOther
If P&C’s transaction risk position in SEK represents exposure in foreign subsidiaries/branches within If with base currency other than SEK
Transaction Risk Position If P&C and Mandatum Life, 31 December 2014
When the financial strength or future prospects of an issuer deteriorate or value of collaterals decreases, equity and spread risks materialize as decreases in the value of investment assets.
Exposures in fixed income and equity instruments are shown in the tables Credit Exposures by Sectors, Asset Classes and Rating, If P&C, Mandatum Life and Sampo Group, 31 December 2014. The tables include also counterparty risk exposures relating to reinsurance and derivative transactions. Counterparty default risks are described in more detail in section Counterparty Default Risks. Due to differences in the reporting treatment of derivatives, the figures in the table are not fully comparable with other tables in this annual report.
The largest holdings are in financial institutions and covered bonds. Most of these investments are in Nordic countries as can be seen in the table Fixed Income Investments in Financial Sector, Sampo Group, 31 December 2014. These exposures increased by EUR 0.9 billion during 2014.
Exposures by Sectors, Asset Classes and Rating Sampo Group, 31 December 2014
The public sector exposure includes government bonds, government guaranteed bonds and other public sector investments. The public sector has had relatively minor role in Sampo Group’s portfolios and these exposures have been mainly in the Nordic countries.
The exposures in non-rated and high yield fixed income instruments are significant, because relatively small number of Nordic companies are rated. The largest high yield and non-rated fixed income investment exposures are presented in the table Ten Largest Direct High Yield and Non-rated Fixed Income Investments, Sampo Group, 31 December 2014.
Fixed Income Investments in Financial Sector Sampo Group, 31 December 2014
Fixed Income Investments in Public Sector Sampo Group, 31 December 2014
The listed equity investments of Sampo Group totaled EUR 3,105 million at the end of year 2014 (EUR 2,749 million in 2013). At the end of year 2014, the listed equity exposure of If P&C was EUR 1,367 million (EUR 1,283 million in 2013). The proportion of listed equities in If P&C’s investment portfolio was 11.9 per cent. In Mandatum Life, the listed equity exposure was EUR 1,698 million at the end of year 2014 (EUR 1,422 million in 2013) and the proportion of listed equities was 25.6 per cent of the investment portfolio.
Breakdown of Listed Equity Investments by Geographical Regions If P&C, 31 December 2014, total EURm 1,367
Breakdown of Listed Equity Investments by Geographical Regions Mandatum Life, 31 December 2014, total EURm 1,678
In addition, Sampo Group’s largest listed equity holdings are disclosed in the Notes to the Financial Statements (Note 40).
Ten Largest Direct Listed Equity Investments Sampo Group, 31 December 2014
Largest Individual Exposures by Issuer and by Asset Class Sampo Group, 31 December 2014
The ten largest individual reinsurance recoverables amounted to EUR 166 million, representing 69 per cent of the total reinsurance recoverables. If P&C’s largest individual reinsurer is Munich Re (AA-). They account for 22 per cent of the total reinsurance recoverables.
The amount of ceded treaty and facultative premiums was EUR 66.8 million. Of this amount, 99.9 per cent was related to reinsurance counterparties with a credit rating of A- or higher.
In order to limit and control default risk associated with ceded reinsurance, If P&C has a Reinsurance Security Policy that 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.
ALM RiskALM Riskss When changes in different market risk variables (interest rates, inflation, foreign exchange rates) cause a change in the fair values of investment assets and derivatives that is of different size than the respective change in the economic value of insurance liabilities, the company is exposed to ALM risk. It has to be noted that the cash flows of insurance liabilities are modelled estimates and therefore uncertain in relation to both their timing and amount. This uncertainty is a central component of ALM risk.
Solvency position and risk appetite are defining general capacity and willingness for risk taking. The stronger the solvency position and the higher the risk appetite, the more the investment portfolio can potentially differentiate from a portfolio replicating cash flows of insurance liabilities.
Investments are managed according to the Investment Policies which are approved by the Boards of Directors of respective companies. Asset class allocations, risk limits by risk types, the risk governance of investment activities and the decision making authorizations are set in the companies’ Investment Policies in a way that maintains the balance between earnings potential, risks and capitalization also at the balance sheet level.
If P&C and Mandatum Life are following the above mentioned principles, but they apply it by taking also into account the specific characteristics of their own businesses.
In accounting the major part of the technical provisions is nominal. However, a still significant part (the provisions for claims outstanding pertaining to annuities), is discounted with interest rates in accordance with regulatory rules. Thereby If P&C is, from an accounting perspective, mainly exposed to changes in inflation and the regulatory discount rates. From an economic perspective, in which the cash flows of insurance liabilities (technical provisions) are discounted with prevailing interest rates, If P&C is exposed to changes both in inflation and nominal interest rates. For more information see the table Sensitivities of Technical Provisions, If P&C, 2014 in Non-life Underwriting Risks section.
When above mentioned control levels are breached, the ALCO reports to the Board which then takes the responsibility on the decisions related to the capitalization and the market risks in the balance sheet.
Economic Value Risks In order to have a comprehensive, economic view on risks and capitalization, Sampo Group companies calculate the economic value of insurance liabilities with market rates and adjust their capital bases in the internal Economic Capital framework accordingly.
TTotal effotal effect on equityect on equity 109109 -129-129 -625-625 -201-201
Liquidity Risks Liquidity risk is the risk that Group companies are, due to lack of available liquid funds or access to relevant markets, unable to conduct their regular business activities in accordance with the strategy, or in extreme cases, are unable to settle their financial obligations when they fall due.
The sources of liquidity risk are either internal or external by their nature. If the company’s rating declines or if the company’s solvency otherwise appears jeopardised, its ability to raise funding, buy reinsurance cover or enter into financial derivatives at a reasonable price is endangered. Moreover, policyholders may also not be willing to renew their policies because of company’s financial challenges or in case of reputational issues. If these risks caused by internal reasons realize together with a general market turmoil, which makes selling of investment assets and refinancing of debt difficult, maintaining adequate liquidity can be a challenge.
However, liquidity risk is relatively immaterial in Sampo Group’s businesses because liabilities in most lines of business are fairly stable and predictable and substantial share of the investment assets are in shortterm money market instruments and liquid government bonds. Sampo Group companies manage the liquidity risk on a daily basis and in addition both parent company’s and the subsidiaries’ creditworthiness and reputation are proactively managed.
In Sampo Group, liquidity risk is managed by the legal entities, which are responsible for liquidity planning and maintaining adequate liquidity buffers. Liquidity risk is monitored based on the expected cash flows resulting from assets, liabilities and other business. In the subsidiaries, the adequacy of liquidity buffers is dependent on the insurance cash flows. In the parent company, the adequacy of liquidity buffers is dependent also on potential strategic arrangements and a strong liquidity in general is preferred. At the end of 2014, the liquidity position in each legal entity was in accordance with internal requirements.
The maturities of technical provisions and financial assets and liabilities are presented in the table Cash Flows According to Contractual Maturity, If P&C, Mandatum Life and Sampo plc, 31 December 2014. The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
MandaMandatum Liftum Lifee of which interest rate swaps of which interest rate swaps
In the table, financial assets and liabilities are divided into contracts that have an exact contractual maturity profile, and other contracts. Only the carrying amount is shown for the other contracts. In addition, the table shows expected cash flows for net technical provisions, which by nature, are associated with a certain degree of uncertainty. In the investment assets of Mandatum Life, the investments of the Baltic subsidiary are included in the carrying amount but excluded from the cash flows.
Cash Flows According to Contractual Maturity If P&C, Mandatum Life and Sampo plc, 31 December 2014
Compliance risk is the risk of legal or regulatory sanctions, material financial losses or loss of reputation resulting from a company’s failure to comply with laws, regulations and administrative orders as applicable to its activities. A compliance risk is usually the consequence of internal misconduct and hence it can be seen as a part of operational risk.
These immediate and longer term effects of operational risk have their general causes in external and internal drivers. The Group companies have their own specific risk sources which are causes of events that may have negative impacts on different processes, personnel or fixed assets.
Business units are responsible for the identification, assessment and management of own operational risks, including organizing adequate internal control. Operational Risk Committee (ORC) 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 Management Committee and Board of Directors on a quarterly basis.
Control Policy, Compliance Policy, Security Policies, Continuity Plan, Procurement and Outsourcing Policy, Complaints Handling Policy and a number of other policies related to ongoing operative activities. Deviations against different policies are followed up independently in each business unit and reported to the Compliance Officer and the ORC.
In regard to capitalization, two components are determined both at company and group level to define the target level of loss absorbing items (amount of capital): • The amount of capital needed for current business activities in the normal course of business: This is based on both measurable and non-measurable risks. Three perspectives - internal, regulatory and rating agency – are taken into account when measuring risks and defining respective capital needs.
The third item to be determined is the capital structure. The capital structure decisions are mainly affected by the eligibility of capital components – equity, issued hybrid instruments and specific reserves – by regulatory rules and by rating agencies’ criteria.
The Swedish requirements for bank capital include components which are country-specific and thus the total requirement is higher than in many other countries. The Swedish FSA has communicated the capital requirement for Nordea and based on it Nordea aims at operating with a CET1 ratio of approximately 15% including a management buffer. The level still involves some uncertainty on Pillar 2 requirements. Because of the different calculation method and confidence level the amount of required capital is also higher than the figure used in Sampo Group’s EC as presented later in figure Breakdown of Capitalization, Sampo Group, 31 December 2014.
The Basel III Common Equity Tier 1 (CET1) ratio of Nordea increased to 15.7%. The CET1 capital amounted to EUR 22.8 billion and the own funds were EUR 30.0 billion. Nordea’s capital requirement based on the transitional rules was EUR 17.6 billion and without the transitional rules it was EUR 11.6 billion.
Internally Sampo Group companies calculate internal performance, risk and capitalization measures based generally on fair values of financial assets and market values of insurance liabilities to have a realistic view of their capitalization. These measures and models are currently being developed taking into account the Solvency II requirements. In Sampo Group the capital need for measurable risks (market, credit, underwriting and operational risks, as well as the diversification effect between them) is defined as Economic Capital (EC) and the available capital including all material loss absorbing items is called Adjusted Solvency Capital (ASC).
However, some of the risks require a more qualitative assessment. These include for instance risks related to low probability and high impact events as well as liquidity risks and are taken into account by subjective add-ons over the EC when the capital needed for current business activities are defined.
Moreover, when assessing the targeted amount of capital, the level of expected profits and its stability together with the uncertainty in the business environment are also considered. The buffer over the capital needed for current business activities is defined based on these items.
In If P&C, EC increased to EUR 1,764 million (EUR 1,720 million at the end of 2013), while in Mandatum Life, EC increased to EUR 1,246 million (EUR 1,085 million at the end of 2013). Market risk is still the most significant risk for both If P&C and Mandatum Life. Underwriting risk decreased in If P&C during the year to EUR 557 million (EUR 565 million at the end of 2013) and increased in Mandatum Life to EUR 473 million (EUR 367 million at the end of 2013).
credit related risks calculated in accordance with the Solvency II standard formula.
Topdanmark. Adjusted Solvency Capital include in both companies regulatory solvency capital. It amounted to EUR 3,347 million in If P&C
Parent company Sampo plc is rated by Moody’s. Rating is based on Moody’s standard notching practice where insurance groups parent company’s rating is set three notches lower than the most significant subsidiary’s rating. This method results into Baa2 rating for Sampo plc.
From regulatory solvency point of view, Sampo Group is regarded as a financial and insurance conglomerate. Group solvency is the amount of regulatory solvency capital calculated according to the Finnish regulation on financial conglomerates from which e.g. the internal items such as subordinated loans are eliminated.
ASC of Sampo Group’s insurance subsidiaries decreased during the year. In both companies positive results strengthened the capitalization whereas paid dividends to the parent company and decreasing interest rates had an opposite effect on the capitalization. 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 ASC and EC figures are calculated. At group level the amount of ASC decreased whereas the amount of EC increased. The capitalization is still considered to be strong. The development of capitalization in Sampo Group from both internal and regulatory perspectives during the year 2014 is shown in the figure Development of Capitalization, If P&C, Mandatum Life and Sampo Group, 31 December 2013 – 31 December 2014.
Development of Capitalization Mandatum Life, 31 December 2013 – 31 December 2014
Updates and refinements are done frequently both into the models and the assumptions used for calculating the economic capital. Thus, the economic capital figures may not be fully comparable between years.
The figure also presents the amount of ASC at group level, which comprises Solvency I capital and other loss absorbing items. In internal assessments, adjusted solvency capital is compared to economic capital. When regulatory capitalization is under consideration, the Solvency I capital is compared to the regulatory capital requirement.
The ratio of ASC to EC was 165% and ratio of ASC to undiversified EC was 144%. The respective differences between ASC and ECs were EUR 3,590 million and EUR 2,789 million. Based on these measures the amount of excess capital can be considered adequate.
Mandatum Life is the smallest company in the Group and Mandatum Life’s with-profit business with high guarantees is on a run-off mode. Hence the capital need is decreasing over time. Therefore the company’s ASC needs to exceed its capital need only by a small margin and sometimes for a short period of time the EC can even be higher than the ASC.
Correlations of profitability and capital positions are low. A general group level concentration risk arises when the Group companies’ profitability or capital positions react similarly to general economic development, i.e. the correlation between general economic development and the profitability of different subsidiaries is more or less analogous. This type of concentration risk can be analyzed indirectly based on profits. From this perspective Sampo plc’s associated company Nordea’s result has created clear diversification benefits, in particular when analyzed vis á vis with If P&C and Mandatum Life. The historical correlation between If P&C’s and Nordea’s, as well as Mandatum Life’s and Nordea’s, quarterly profits since 2005 is very low. The historical correlations of
Because of favourable profit correlations between the companies and relatively low volatilities of If P&C’s and Nordea’s profits, the profit development is quite stable at group level which further decreases the need to maintain additional capital buffers over economic capital at group level.
Sampo Group reports its Group solvency quarterly to the Finnish supervisory authorities monitoring the
At the end of 2014, Sampo Group’s consolidated regulatory capital position was strong.
Risk Management PrRisk Management Prococesess Outlooks Outlook Sampo Group companies continuously develop their risk management processes. This work is based on internal needs and regulatory requirements of which Solvency II has been the most important driver during the latest years.
The new Solvency II regulations will be implemented 1st January 2016. On 10th October 2014 the Commission adopted a Delegated Act containing implementing rules for Solvency II. The regulation has been approved by the European Parliament and the European Council and published in January 2015. EIOPA has launched a series of consultations during the year 2014 for supplementary rules and guidelines and this will finalize the technical implementation of Solvency II. The 1st of January 2014 was the onset of the Preparatory phase, which will last until Solvency II is fully implemented.
Risks, in the Preparatory phase) reports to the Boards as well as to the supervisors in December 2014. If P&C and Mandatum Life are also preparing Solvency II Pillar 3 reports, which will be submitted to supervisors for the first time during Preparatory phase in June 2015.
To meet with requirements of the Preparatory phase and with those expected once Solvency II has fully entered into force, both companies have continued internal work to ensure compliance with requirements. This work will continue during 2015 as well. If P&C has continued to make progress with its application for applying for a partial internal model. If P&C intends to have its partial internal model approved when Solvency II enters into force. The onset for the formal application is expected by mid-2015. Mandatum Life will most likely use the regulatory standard model including transitional measures for external Solvency II calculations although it has an internal approach for assessment of risks and capital as well.
Financial Statements 156 Group's IFRS Financial Statements 156 Statement of profit and other comprehensive income, IFRS
TTotal itotal items rems reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax -285-285 -13-13
EEquity aquity at 31 Dect 31 December 2013ember 2013 9898 00 44 1,5271,527 8,1758,175 -106-106 976976 -30-30 10,64310,643
EEquity aquity at 31 Dect 31 December 2014ember 2014 9898 00 44 1,5271,527 8,6558,655 -370-370 1,0391,039 -30-30 10,92410,924 1) The total comprehensive income includes also the share of the associate Nordea's other comprehensive income, in accordance with the Group's share holding. The retained earnings thus include EURm -85 (25) of Nordea's actuarial gains/losses The exchange differences include the share of Nordea's exchange differences EURm -90 (-99). Respectively, available-for-sale financial assets include EURm 7 (5) of Nordea's valuation differences.
2) The amount recognised in equity from available-for-sale financial assets for the period totalled EURm 177 (280). The amount transferred to p/l amounted to EURm -120 (-70).
3) The amount recognised in equity from cash flow hedges for the period totalled EURm - (-0) .
4) IAS 19 Pension benefits had a net effect of EURm -160 (-83) on retained earnings.
The amount included in the translation, available-for-sale and cash flow hedge reserves represent other comprehensive income for each component, net of tax.
AAdditional infdditional informaormation ttion to the so the statattement of cash floement of cash flowws:s: 20142014 20132013
If P&C Insurance Ltd. acquired the business of Tryg Finland on 1 May, 2013. The purchase price was EURm 15. The cash and cash equivalents transferred amounted to EURm 93. The transferred net assets totalled about EURm 15. The liabilities consisted mainly of insurance liabilities.
Summary of significant accounting policies Sampo Group has prepared the consolidated financial statements for 2014 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 31 December, 2014.
IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on 1 Jan 2013 or after, latest application for annual period beginning on 1 Jan 2014) defines closer the concept of control as the crucial factor for consolidation. The new standard had no material impact on the Group’s financial statements reporting.
Revised IAS 27 Consolidated and Separate Financial Statements (effective for annual periods beginning on 1 Jan 2013 or after, latest application for annual period beginning on 1 Jan 2014) 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 had no material impact on the Group’s financial statements reporting.
Revised IAS 28 Investments in Associates (effective for annual periods beginning on 1 Jan 2013 or after, latest application for annual period beginning on 1 Jan 2014) includes the requirements for using the equity method accounting for investments in associates and joint ventures. The adoption of the revised standard will had no material impact on the Group’s financial statements reporting.
affects both the amount of recognised goodwill and non-controlling interest. The excess of the aggregate of consideration transferred, non-controlling interest and possibly previously held equity interest in the acquiree, over the Group’s share of the fair value of the identifiable net assets acquired, is recognised as goodwill.
Exchange differences that existed at the Group’s IFRS transition date, 1 January 2004, are deemed to be zero, in accordance with the exemption permitted by IFRS 1.
AAvvererage eage exxchangechange rraattee 1 euro (EUR) = Swedish krona (SEK)
The fees and transaction costs of financial instruments measured at fair value through profit or loss are recognised in profit or loss when the instrument is initially recognised.
In the life insurance business, liabilities arising from insurance and investment contracts count as longterm liabilities. Therefore the insurance premium and related claims are usually not recognised in the same accounting period. Depending on the type of insurance, premiums are primarily recognised in premiums written when the premium has been paid. In group pension insurance, a part of the premiums is recognised already when charged.
In the life insurance business, IFRS 4 Insurance Contracts provides that insurance contracts with a discretionary participation feature are measured in
In the Holding business, investments are primarily classified as financial assets available-for-sale.
at fair value, and the changes in fair value are recorded in other comprehensive income and presented in the fair value reserve, taking the tax effect into account. Interest income and dividends are recognised in profit or loss. When the available-forsale assets are sold, the cumulative change in the fair value is transferred from equity and recognised together with realised gains or losses in profit or loss. The cumulative change in the fair value is also transferred to profit or loss when the assets are impaired and the impairment loss is recognised. Exchange differences due to available-for-sale monetary balance sheet items are always recognised directly in profit or loss.
Other financial liabilities comprise debt securities in issue and other financial liabilities.
If a market for a financial instrument is not active, or the instrument is not quoted, the fair value is established by using generally accepted valuation techniques including recent arm’s length market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.
watch list, or there is a significant or prolonged decline in the fair value of an equity instrument below its original acquisition cost.
hedged item, as well as the risk management objective and strategy for undertaking the hedge, are documented at the inception of the hedge. In addition, the effectiveness of a hedge is assessed both at inception and on an ongoing basis, to ensure that it is highly effective throughout the period for which it was designated. Hedges are regarded as highly effective in offsetting changes in fair value or the cash flows attributable to a hedged risk within a range of 80-125 per cent.
The pay-as-you-go system related to pension index raises is not treated as an insurance activity under IFRS 4 and does not generate any risk for the insurance company. Thus, the pay-as-you-go contribution collected together with the insurance premium is not deemed to be premium income, and the pension index raise paid out is not deemed to be claims incurred. Because the collected index raise corresponds in amount to the paid out pension index raise, the said items are set-off in the Income
Regarding the group pension portfolio transferred from Suomi Mutual (=segregated portfolio), a socalled shadow accounting is applied, as permitted in IFRS 4.30, by adjusting the equity with the amount of unrealised gains and losses of the agreement. The equity is adjusted with an amount that unrealised gains or losses would have affected the Segregated Portfolio in accordance with the profit distribution policy ot the segregated portfolio, if the gains or losses had been realised at the balance sheet date.
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 DPF are discounted by an interest rate of 3.5 per cent, also being the highest discount rate used. In addition, Mandatum Life has for the year 2015 lowered the maximum rate to 2.0%, and for the year 2016 to 2.0%. The segregated liabilities of the accrued benefits of group pension portfolio, transferred from Suomi Mutual to Mandatum Life, have been discounted by 1.0%.
Due to the difference in the discount rate of liabilities and the guaranteed interest of 4.5% and 3.5%, supplementary provisions for guaranteed interest have been added to technical provisions. In the subsidiary, Mandatum Life Insurance Baltic, the discount rate varies by country between 2.0 - 4.0 per cent and the average guaranteed interest rate between 2.0–4.0 per cent.
Sampo’s main assumptions concerning the future and the key uncertainties related to balance sheet estimates are related, for example, to assumptions used in actuarial calculations, determination of fair values of non-quoted financial assets and liabilities and investment property and determination of the impairment of financial assets and intangible assets. From Sampo’s perspective, accounting policies concerning these areas require most significant use of estimates and assumptions.
Evaluation of insurance liabilities always involves uncertainty, as technical provisions are based on estimates and assumptions concerning future claims costs. The estimates are based on statistics on historical claims available to the Group on the balance sheet date. The uncertainty related to the estimates is generally greater when estimating new insurance portfolios or portfolios where clarification of a loss takes a long time because complete claims statistics are not yet available. In addition to the historical data, estimates of insurance liabilities take into consideration other matters such as claims development, the amount of unpaid claims, legislative changes, court rulings and the general economic situation.
Consolidated income statement by business segment for year ended 31 December 2014
PrProfit fofit for the yor the yearear 740740 133133 669669 -2-2 1,5401,540
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss,s, net of taxnet of tax -76-76 -- -- -- -76-76
PrProfit fofit for the yor the yearear 748748 119119 586586 -1-1 1,4521,452
ItItems rems reclaseclassifiable tsifiable to pro profit or losofit or losss
The cost of the portfolio transfer EURm 1.4 is included in the income statement in Other operating expenses.
The effect of the portfolio transfer on life insurance balance sheet on 30 December 2014 was as follows: AsAssetssets
185185 1 Insurance premiums written 187187 2 Net income from investments 191191 3 Claims incurred 194194 4 Change in liabilities for insurance and investment contracts 195195 5 Staff costs 196196 6 Other operating expenses 197197 7 Result analysis of P&C insurance 198198 8 Performance analysis per class of P&C insurance 199199 9 Earnings per share 199199 10 Financial assets and liabilities 200200 11 Property, plant and equipment 202202 12 Investment property 204204 13 Intangible assets 205205 14 Investments in associates 207207 15 Financial assets 212212 16 Fair values 213213 17 Determination and hierarchy of fair values 216216 18 Movements in level 3 financial instruments measured at fair value 218218 19 Sensitivity analysis of level 3 financial instruments measured at fair value 218218 20 Investments related to unit-linked insurance contracts 219219 21 Deferred tax assets and liabilities 221221 23 Components of other comprehensive income 222222 24 Tax effects relating to components of other comprehensive income 222222 25 Other assets 224224 26 Cash and cash equivalents 225225 27 Liabilities from insurance and investment contracts 231231 28 Liabilities from unit-linked insurance and investment contracts 231231 29 Financial liabilities 233233 31 Employee benefits 237237 32 Other liabilities 238238 33 Contingent liabilities and commitments 240240 34 Equity and reserves 241241 35 Related party disclosures 242242 36 Incentive schemes 243243 37 Auditors' fees 243243 38 Legal proceedings 243243 39 Investments in subsidiaries 244244 40 Investments in shares and participations other than subsidiaries and associates 249249 41 Events after the balance sheet date
Change in unearned prChange in unearned premium premium proovision, netvision, net -6-6 -55-55
Single and rSingle and regular pregular premiums fremiums from dirom direct insurect insurancancee
Included in gains/losses from financial assets available-for-sale is a net gain of EURm -133 (-63) transferred from the fair value reserve.
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 10 (70) transferred from the fair value reserve.
Included in gains/losses from financial assets available for-sale is a net gain of EURm 2 (4) transferred from the fair value reserve.
Change in claims provision for annuities -10 - -10 -7 0 -7
TTotal claims cotal claims cosost at attributable tttributable to prior-yo prior-yearear
Change in prChange in proovision fvision for claims outsor claims outstandingtanding
Change in claims provision for annuities 43 0 43 45 0 45
TTotal change in protal change in proovision fvision for claims outsor claims outstandingtanding 5050 -178-178 -128-128 114114 -126-126 -11-11
The provision for annuities is valued in accordance with normal actuarial principles taking anticipated inflation and mortality into consideration, and discounted to take the anticipated future investment return into account. To cover costs for the costs for the upward adjustment of annuity provisions required for the gradual reversal of such discounting, an anticipated return is added to the annuity results. Provisions for incurred but not reported losses pertaining to annuities in Finland are discounted. The provisions in 2014 amounted to EURm 257 (282). The non-discounted value was EURm 388 (453). The exchange effect on the discounted provisions was an increase of EURm 16. The real decrease EURm 26 is explained by the model adjustment for Motor Third Party Liability and Workers' Compensation insurances.
Claims paidClaims paid Change in prChange in proovisionvision ffor claims outsor claims outstandingtanding Claims incurrClaims incurreded
InsurInsurancance ce controntracts tacts total, netotal, net -585-585 -565-565 33 77 -582-582 -559-559
GrGroupoup, t, totalotal -3,771-3,771 -3,677-3,677 4 Change in liabilities for insurance and investment contracts
Change in liabilities fChange in liabilities for insuror insurancance and ine and invvesestment ctment controntracts in tacts in total, netotal, net -499-499 -648-648
GrGroupoup, t, totalotal -558-558 -543-543 7 Result analysis of P&C insurance
Weighted average number of shares outstanding during the period 560 560
Financial asFinancial assets, grsets, group toup totalotal 19,00419,004 366366 356356 -62-62 135135
Financial liabilities aFinancial liabilities at ft fair vair value thralue through p/lough p/l
Financial asFinancial assets asets at ft fair vair value thralue through p/lough p/l
Financial asFinancial assets, grsets, group toup totalotal 17,60917,609 453453 221221 -38-38 125125
Net carrying amountNet carrying amount 33 11 55 44 22 55
Net carrying amountNet carrying amount 11 33 44 11 33 44
Non-cancNon-cancellable minimum rellable minimum rentalental - not later than one year 1 1 - later than one year and not later than five years 1 1 - later than five years - 0
Fair values for the Group's investment property are entirely determined by the Group based on the market evidence. The determination and hierarchy of financial assets and liabilities at fair value is disclosed in note 17. Based on the principles of this determination, the investment property falls under level 2.
Net carrying amountNet carrying amount 567567 2323 590590 *) The change in the cost is due to exchange differences.
Net carrying amountNet carrying amount 153153 99 162162 153153 1111 164164
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,interest rates, margins, capital structure and income and cost development. The value in use model for Mandatum Life is greatly influenced by the longterm development of insurance liabilities, affecting e.g. the required solvency capital and thus the recoverable amount. That is why the forecast period is longer for Mandatum Life, 10 years. The derived cash flows were discounted at the pre-tax rates of the weighted average cost of capital which for If was 7.7 % and for Mandatum Life 8.3 %. These are somewhat lower than last year due to the decrease in interest rates.
Changes in the equity of associates -151 -47 -198 -123 -4 -128
AAt end of yt end of yearear 7,0657,065 382382 7,4477,447 6,9066,906 375375 7,2827,282
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.
The Group uses derivative instruments for trading and for hedging purposes. The derivatives used are foreign exchange, interest rate and equity derivatives. Fair value hedging has been applied during the financial year both in P&C and Life insurance.
TTotal intotal intereresest rt raatte derive derivaativtiveses 153153 -- -3-3 1,2501,250 11 55
PP&C insur&C insurancancee, t, total financial asotal financial assetssets 11,02111,021 11,26511,265
TTotal fotal fororeign eeign exxchange derivchange derivaativtiveses 1,3771,377 33 1515 955955 77 11
TTotal derivotal derivaativtives held fes held for tror tradingading 3,3983,398 33 3535 7,4417,441 3232 1111
TTotal derivotal derivaativtives held fes held for hedgingor hedging 583583 00 5050 501501 11 00
Fair value hedging is used to hedge a proportion of foreign exchange and interest risk in available-for-sale financial assets. The interest elements of forward contracts have been excluded from hedging relationships in foreign exchange hedges. Net result from exchange derivatives designated as fair value hedges amounted to EURm -74 (18). Net result from hedged risks in fair value hedges of available for sale financial assets amounted to EURm 74 (-18).
LifLife insure insurancancee, t, total financial asotal financial assetssets 5,6655,665 5,1225,122
TTotal intotal intereresest derivt derivaativtiveses 800800 2323 00 820820 2626 --
Equity and euqity index options 69 10 11 88 14 16
A large majority of Sampo Group's financial assets are valued at fair value. The valuation is based on either published price quatations or valuation techniques based on market observable inputs, where available. For a limited amount of assets the value needs to be determined using other techniques. The financial instruments measured at fair value have been classified into three hierarchy levels in the notes, depending on e.g. if the market for the instrument is active, or if the inputs used in the valuation technique are observable.
During the last quarter, the Group started to utilise the BVAL Score information for level determination. As a result, there were several classification changes from level 2 to level 1. Debt securities available-for-sale EURm 5,438 (151) were transferred during the financial year. Also debt securities at fair value through p/l EURm 19 were transferred. Equity securities EURm 68 and debt securities EURm 368, related to unit-linked insurance, were equivalently transferred to level one.
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
Total gains or losses included in profit or loss for the financial year
TTotal financial asotal financial assets designasets designatted aed at ft fair vair value thralue through p/lough p/l 149 183
The historical cost of the equity securities related to unit-linked contracts was EURm 3,248 (2,646) and that of the debt securities 21 Deferred tax assets and liabilities
TTotal defotal deferrerred tax liabilities in the balanced tax liabilities in the balance sheete sheet 508508
In Sampo plc, EURm 27 of deferred tax asset has not been recognised on unused tax losses. The first losses will expire in 2021.
Other cOther compromprehensivehensive ince income:ome: ItItems rems reclaseclassifiable tsifiable to pro profit or losofit or losss
Share of associate's other comprehensive income -168 - -168 -70 - -70 25 Other assets
Item Other comprise e.g. pensions paid in advance and receivables from co-operation companies.
The liabilities at 1 Jan. and at 31 Dec. include the future bonus reserves and the effect of the reserve for the decreased discount rate. 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.
DerivDerivaativtive financial inse financial instruments (nottruments (note 15)e 15) 24 25
Preferred capital note, 2011 (nominal value EURm 110) 30 vuotta 6.00% 109 109
The loans issued in 2005 and 2011 are listed on the Luxembourg Exchange.
Holding, tHolding, totalotal 2,2032,203 2,0452,045 *) The determination and hierarchy of financial assets and liabilities at fair value is disclosed in note 17. Based on the principles of this determination, the boned of the Holding Company fall under level 2.
Net pension obligaNet pension obligation rtion rececognised in theognised in the balancbalance sheete sheet 265265 195195
To cover the insured pension benefits, the related capital is managed as part of the insurers’ management portfolios. In such management, the characteristics of the investment assets are analyzed in relation to the characteristics of the obligations, in a process known as Asset Liability Management. New and existing asset categories are evaluated continuously in order to diversify the asset portfolios with a view to optimizing the anticipated risk-adjusted return. Any surplus that arises from management of the assets normally accrues to If and/or the insured and there is no form of transfer of the asset value to other members of the insurance collective.
The following tables contain a number of material assumptions, specifications of pension costs, assets and liabilities and a sensitivity analysis showing the potential effect on the obligations of reasonable changes in those assumptions as at the end of the fiscal year. The carrying amounts have been stated including special payroll tax in Sweden (24.26%) and a corresponding fee in Norway (14.1%).
Interest expense on net pension liability -1 -6 -7 -2 -5 -7
TTotal in cotal in compromprehensivehensive ince income some statattementement -40-40 -88-88 -129-129 1212 -55-55 -43-43
Average duration of pension liabilities 22 years 20 years 17 years 16 years
PPension liabilities:ension liabilities: At the beginning of the year 580 595
Plan asPlan assets asets at 31 Dec.t 31 Dec. 399399 385385
Item Other includes e.g. reservations for share-based incentive programmes and other incentive salaries.
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 Holding Ltd and If P&C Insurance Ltd issued a guarantee for the benefit of Försäkringsaktiebolaget Skandia (publ.) whereby the aforementioned companies in the If Group mutually guarantee that companies in the Skandia group will be indemnified against any claims or actions due to guarantees or similar commitments made by companies in the Skandia group within the property and casualty insurance business transferred to the If Group.
If P&C Insurance Holding Ltd and If P&C Insurance Ltd have separately entered into contracts with Försäkringsaktiebolaget Skandia (publ.) and Tryg-Baltica Forsikrings AS whereby Skandia and Tryg-Baltica will be indemnified against any claims attributable to guarantees issued by Försäkringsaktiebolaget Skandia (publ.) and Vesta Forsikring AS, on behalf of Skandia Marine Insurance 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.
If P&C Insurance Company Ltd has outstanding commitments to private equity funds totalling EURm 10, 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 paMinimum lease paymentsyments not later than one year 2 2 later than one year and not later than five years 9 8 later than five years 8 9
Lease and sublease payments recognised as an expense in the period - minimum lease payments -2 -3
The Group had at the end of 2014 premises a total of 171,598 m2 (178,877) taken as a lessee. The contracts have been made mainly for 3 to 10 years.
The Board of Directors of Sampo plc has decided on the long-term incentive schemes 2011 I - 2014 I for the management and key employees of Sampo Group. The Board has authorised the CEO to decide who will be included in the scheme, as well as the number of calculated incentive units granted for each individual used in determining the amount of the incentive reward. In the schemes, the number of calculated incentive units granted for the members of the Group Executive Committee is decided by the Board of Directors. Over 130 persons were included in the schemes at the end of year 2014.
The amount of the performance-related bonus is based on the value performance of Sampo's A share and on the insurance margin (IM) and on Sampo's return on the risk adjusted capital (RORAC). The value of one calculated incentive unit is the tradeweighted average price of Sampo's A-share at the time period specified in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The pre-dividend starting prices vary between eur 18.37 - 38.26. The maximum value of one incentive unit varies between eur 33.37 - 57.26, reduced by the dividend-adjusted starting price. In all the schemes, the incentive reward depends on two benchmarks. If the IM is 6 per cent or more, the IM-based reward is paid in full. If the IM is between 4 - 5.99 per cent, half of the incentive reward is paid. 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. If the return is at least risk free return + 4 per cent, the RORAC-based incentive reward is paid out in full. If the return is risk free return + 2 percent, but less than risk free return + 4 percent, the payout is 50 per cent. If the return stays below these benchmarks, no RORAC-based reward will be paid out.
There are a number of legal proceedings against the Group companies outstanding on 31 Dec. 2014, arising in the ordinary course of business. The companies estimate it unlikely that any significant loss will arise from these proceedings.
PP&C insur&C insurancancee, t, total sharotal shares and participaes and participationstions 1,5531,553
DomesDomestic shartic shares and participaes and participations in ttions in totalotal 999999
EI du Pont de Nemours & Co United States 0,01% 5
Comgest Growth Asia Ex Japan USD I Acc Class Guernsey 52
Goldman Sachs Loan Partners I Offshore B, L.P. Cayman islands 9
LifLife insure insurancancee, t, total sharotal shares and participaes and participationstions 2,6932,693
In the meeting of 11 Feb. 2015, the Board of Directors decided to propose at the Annual General Meeting on 16 April 2015 a dividend distribution of EUR 1.95 per share, or total EUR 1.092.000.000, for 2014. The dividends to be paid will be accounted for in the equity in 2015 as a deduction of retained earnings.
Net cash used in financing activitiesNet cash used in financing activities -725-725 -839-839
Net change in cash and cash equivNet change in cash and cash equivalentsalents 487487 -193-193 *) Investments include both investment property and financial assets.
Additional information to the statement of cash flows: Interest income received 61 61
256256 Notes to the income statement 1–4 257257 Notes to the assets 5–9 259259 Notes to the liabilities 10–13 260260 Notes to the income taxes 14 261261 Notes to the liabilities and commitments 15–17 261261 Notes to the staff and management 18–20 263263 Notes to the shares held 21
6 Other shares and participations 20142014 FFair vair value changesalue changes 20132013 FFair vair value changesalue changes
Carrying amount aCarrying amount at end of yt end of yearear 00 00
Carrying amoun aCarrying amoun at 1 Jan. 2013t 1 Jan. 2013 9898 00 1,5271,527 273273 4,8954,895 6,7936,793
Carrying amount aCarrying amount at 31 Dec. 2013t 31 Dec. 2013 9898 44 1,5271,527 273273 4,9764,976 6,8776,877
Guarantees for derivate contracts 47 47 13 Accruals and deferred income
Over one year but not more than five years 1 2 17 Off-balance sheet items
ApprApproovval of the Financial Sal of the Financial Statattementsements and the Boarand the Board of Dird of Directectors' Rors' Reporteport
The registration for the Annual General Meeting ends at 4 pm (CET+1)
The Interim Reports are published on Sampo's website at www.sampo.com/result. You can subscribe to Sampo's stock exchange releases and press releases at www.sampo.com/subscription.