THIS WAS SAMPO’S SITUATION AT THE END OF 2003. IN FEBRUARY 2004, SAMPO ANNOUNCED AN INCREASE IN ITS OWNERSHIP OF IF P&C INSURANCE. AS A RESULT, IF WILL BECOME A SUBSIDIARY GROUP OF SAMPO OPERATING UNDER ITS PRESENT NAME.
PER SHARE KEY FIGURES Earnings per share, EUR 0.64 0.63 1.6 Net asset value per share, EUR * ) 5.64 5.26 7.2 Dividend per share, EUR **) 1.50 0.35 328.6 *) Less full deferred tax.
2 Group Key Information 4 Chief Executive Offi cer’s Review 6 Sampo’s Strategy and Financial Targets 7 Business Area Reviews 8 Banking 8 Retail Customers 9 Private Bank 10 Corporate and Institutional Customers 11 Corporate Finance 12 Long-term Savings 12 Life Insurance 13 Mutual Funds 13 Asset Management 14 Brokerage 14 Sampo in the Baltic region and Poland 15 Realty World (Kiinteistömaailma) 16 If P&C Insurance 17 Sampo’s Roots 17 The Year 2003 18 Main Legal Structure 19 Corporate Governance 22 Board of Directors 24 Group Executive Committee 26 Staff 28 Corporate Responsibility 30 Shares and Shareholders 33 Analysis of Sampo 34 Financial Statements and Notes 35 Board of Directors’ Report 42 Consolidated Profi t and Loss Account 45 Consolidated Balance Sheet 50 Parent Company Profi t and Loss Account 51 Parent Company Balance Sheet 52 Notes to the Accounts 52 Risk Management 64 Accounting Policies 70 Calculation Methods for the Key Figures 74 Key Figures 77 Other Notes to the Accounts 120 Auditors’ Report 121 Contact Information 123 Financial Information
In long-term savings, the broadening of tax-supported pension saving to cover other products than insurance suits us fi ne. But the government’s proposal for retroactive changes in present agreements is absurd. By this action, the government will only weaken the incentives for longterm saving. Who will be ready to invest for the long term, if the state can change agreements at will?
If is well-suited to Sampo The acquisition of If as part of the Group produces interesting additional benefi ts for Sampo’s shareholders. It adds a third major business to Sampo alongside banking and long-term savings. Simultaneously we also address the question of our over-capitalisation by way of the proposed EUR 1.5 dividend per share. When the Annual General Meeting adopts the Board’s proposal, we will have distributed a total of EUR 4.2 a share to our owners in four years. On top of that, we have now acquired a third business area. I believe we have done well in producing value for our owners and we intend to continue in the same manner.
Although there are no synergies between banking and P&C insurance, the acquisition will yield considerable added value for Sampo’s shareholders. If’s Finnish operations account for only 23 per cent of its total business. Injecting those operations into If gained us a 38 per cent share in the company three years ago. Now we were able to increase our stake to 90 per cent with EUR 1.37 billion.
I wish to thank our staff for a fi ne year and I believe we will do even better in 2004. The new Sampo’s competitive edge is not in its technology or products, but rather in its total concept and service. Our staff and their expertise will continue to play a key role in Sampo’s success.
The most customer-oriented and competent fi nancial services group in Finland – in Europe’s fastest growing investment and savings market
This, combined with the current small amount of household savings in fund and life insurance products, makes Finland the fastest growing investment and savings market in Europe.
Essential to Sampo’s strategy is the conviction that it need not do everything itself. Sampo’s customers will get the best overall service when Sampo links up with strategic partners to provide those products or services it cannot effectively produce itself.
RORAC = Net operating profi t (taxes 29%) / Risk Allocated Capital, average (7% of risk weighted assets) C/I -ratio = total expenses / total income (fees and commissions net) RONAV = Net operating profi t (taxes 29 %) less bonuses / NAV (average)
Business Area Reviews 2003 8 Banking 8 Retail Customers – Growing demand for advisory services; customers welcomed the Personal Financial Plan 9 Private Bank – Assets under management grew by one third 10 Corporate and Institutional Customers – The market leader in many customer segments and services 11 Corporate Finance – Corporate Finance company and brokerage operations divided into different line organisations 12 Long-term Savings 12 Life Insurance – Unit-linked insurance grew in popularity 12 Mutual Funds – EUR 5 billion exceeded in fund assets 13 Asset Management – Trust refl ected in growth in assets under management 14 Brokerage – New customers through active marketing 14 Sampo’s Baltic and Polish Subsidiaries – Strong growth in Estonia 15 Realty World (Kiinteistömaailma) – Turnover grew faster than the markets 16 If P&C Insurance – If became a familiar brand to Finns
Demand for fi nancial advisory services continued to grow – Personal Financial Plan is a signifi cant new tool for customers’ fi nancial planning.
Personal Financial Plans are drawn up by the customer and a Sampo expert, working together and using a webbased program. The program helps the customer to gain an overview of the different elements which make up his or her fi nances: living expenses, savings, investment of savings, and reserves to cover unexpected events. This new service requires that customer service staff have a broader understanding of the customer’s general situation and fi nances than was needed in the conventional product-based approach, and it requires expertise in saving, investment and fi nancing services. The staff review on pages 26-27 describes the extensive training that has been organised to prepare staff for the new service model.
Majority of everyday transactions transferred to electronic service channels Recent years have seen a very signifi cant change in demand for basic banking services. The majority of customers now handle their daily payment transactions either through the web bank or using direct debits. Of all retail customers’ payment transactions, 97 per cent already take place outside the branch service.
Banking Retail Customers and phone service, and as a result the number of employees was reduced by a total of 346 persons.
Sales concentrate on products suitable for telesales, such as cards and consumer credit. Services such as the preparation of comprehensive fi nancial plans for customers - and such elements of overall planning as housing loans and saving plans - are better suited to faceto -face meetings, and are therefore actively promoted in the branches. In line with Sampo’s strategy, the bank played a very central role in selling investment and savings services provided by companies in the Group.
Growth in housing loans, rapid increase in card payments Sampo´s retail customers’ savings within the Group increased by 8.2 per cent from the beginning of the year. Deposits, which are included in the above-mentioned savings, increased by 2.5 per cent. The fastest growth was in unit-linked insurance policies, which were up by 65 per cent. Funds also showed remarkable growth, with retail-sector assets increasing by 25 per cent.
differentiate itself by offering - in addition to the loan offer itself - a plan suggesting how customers can manage their fi nances during the term of the loan, and even beyond.
Sampo’s MasterCard and Visa cards continued to attract a lot of interest. One factor behind the popularity of these cards was the introduction of special designs based on themes like the Marimekko Poppy and Kaj Stenvall ’s paintings of ducks - at the beginning of the year. The international credit cards and Visa Electron cards continued to increase in terms of both total numbers and as a proportion of all Sampo cards. Demand remained strong for the credit facilities linked to Sampo’s credit cards and for Balanssi consumer credits. A signifi cant part of the 70 per cent increase in this overall credit stock was attributable to customers concentrating their banking affairs in Sampo. The number of transactions using payment cards increased by more than 9 per cent, while withdrawals from cash dispensers decreased by almost 7 per cent.
The Massi package was launched to help students in higher education handle their fi nancial affairs. In addition to account services and a Visa Electron, it also includes the opportunity to take out a EUR 200 interest-free loan, as well as a Visa card, once the necessary number of study credits has been acquired.
Mandatum Private Bank, which is part of Sampo Bank, offers private wealth management services to individuals and to companies and institutions owned or controlled by them. Mandatum Private Bank has ten branches, and also operates via the web and phone service. In addition to comprehensive asset management and banking services, customers can also gain access via Mandatum Private Bank to assistance in purchasing or selling real estate and forest assets, as well as in legal matters. Mandatum Private Bank offers both discretionary and non-discretionary portfolio management services. There was an increase of more than 30 per cent in the amount of assets under management from the previous year.
The services for corporate customers include risk management and corporate fi nance, as well as insurance and performance bonus systems for executives and staff. Customer account managers ensure that customers get the right services for their needs.
The number of active corporate customers increased to almost 100,000 by the end of 2003. During the year the staff of Sampo’s corporate branches improved their competence particularly in cash management and investment services. This, combined with increased sales activity, enabled the diversifi cation of services offered to customers.
Lending by corporate branches increased 20 per cent Lending by corporate branches grew substantially in Finland for the power, metal and engineering sectors and for housing corporations. Despite rapid growth, the spreads in corporate loans ended the year close to the fi gures of the year’s beginning.
In 2003 Sampo separated its investment banking units, i.e. the corporate fi nance operations and the securities brokerage & investment research company, from each other. The corporate fi nance company, Mandatum & Co Ltd, and Mandatum Stockbrokers Ltd, continue as independent companies and report to different members of the Group Executive Committee. The reform emphasised the independence of the investment research function from corporate fi nance services.
Mandatum & Co maintained its leading position as an advisor in mergers and acquisitions and other corporate restructuring in a diffi cult market situation and with tightening competition. There were no initial public offerings (IPOs) in Finland during the year. Overall, the volume of capital market transactions was modest, even though equity indices in Finland and globally showed a clear improvement following the weak performance in the beginning of the year.
In equity-related capital market transactions, the main emphasis was on right issues directed to existing shareholders. Share sale fi gures were lower than during the previous year. As a result of corporate restructuring, a substantial number of companies are delisting from the Helsinki Exchanges. This trend is also expected to continue in coming years.
The number of mergers and acquisitions is expected to grow in 2004. However, total volumes are estimated to be clearly lower than in the record years. The objective of Mandatum is to maintain its leading position in Finnish and Finland-related Nordic mergers and acquisitions. Thanks to the upswing in the equity markets, there are expectations of a revival in capital market transactions after three years of calm. Mandatum & Co together with Mandatum Stockbrokers and Sampo Bank’s branch network form a highly competitive entity in capital market transactions.
Syndicated loan volumes quadrupled compared with recent years In the capital markets, 2003 was a year of syndicated loans. Finnish companies signed new loans worth nearly EUR 12 billion - almost four times the annual average for the last fi ve years. These loans were mostly used to refi nance earlier corresponding arrangements. Sampo had a signifi cant role in nearly all transactions and acted as the lead arranger in six loans.
In 2003, the market for European corporate bonds grew by one quarter on the previous year. New bonds were launched to a value of EUR 260 billion. In an environment of low reference interest rates, the demand for corporate bonds was very strong due to the extra yield they offered. This reduced the corporate-specifi c risk premiums signifi cantly. Favourable pricing also attracted many new companies to the bond markets. Growth in the domestic bond market was more moderate despite good demand, because Finnish companies concentrated on renewing their syndicated loans. The fi rst Finnish company came onto the bond market only in September, when Sampo arranged a EUR 100 million bond for YIT Corporation. The capital markets unit also increased its focus on fi nancial advisory services in response to customer needs in debt structure planning. In 2003 the unit acted as advisor in structured fi nance projects for three companies.
In trade fi nance, Sampo has focused particularly on documentary payments, which for many companies form an important part of risk management related to foreign payments in developing markets. In 2003 the web services for documentary payments were expanded to cover the major customers. Other basic products in trade fi nance are also in the service selection. Based on its competence and rapid service, Sampo has achieved a position as one of the leading banks in Finland offering trade fi nance. Its areas of focus are Asia, particularly China and South Korea, the Middle East and, to an increasing extent, Russia.
Electronic invoices were successfully sent between customers through the bank using the new Finvoice standard. Sampo was the fi rst bank to apply the standard in praxis for the benefi t of its corporate customers. In addition, the bank was active in developing new services such as the web salary concept, more sophisticated web payments and tools to facilitate fully seamless and automatic web based eAccounting service for bank’s SME- customers. New service is also provided for bank’s customers in data transmission between companies and authorities. The service includes both web based transmission of data and web based payment such as tax payments. In 2003 Sampo also widened the effective payment service concept to cover the whole Baltic region. Domestically the bank developed new easy-to–use payment service packages for different customer segments in SME fi eld.
Life insurance – success in focus areas Sampo Life Insurance Company Limited provides Sampo’s voluntary life and pension insurance services in Finland. A description of these services in the Baltic area and Poland is on page 14.
In 2003, Sampo Life successfully concentrated on its areas of focus, unit-linked and regular premium insurance. The favourable development was supported by successful investment activities, effi cient distribution and improved cost-effi ciency.
The keen interest of Finns in supplementing their future pensions was evident in premiums written in individual pension insurance, which increased by 14 per cent. Sales to retail customers continued to be strong, and the number of individual pension insurance policies sold to corporate customers increased by almost 30 per cent. Sampo Life’s position as the leading corporate insurer also affected its success in sales to retail customers. Individual pension insurance policies offered to company employees jointly by Sampo Life and the employer generated new sales for Sampo Life and a new kind of employee benefi t for companies.
The uncertainty of customers and the investment markets turned to cautious optimism during the year. Sampo
Life launched the new Positive 2008 for customers looking for a profi table and safe investment vehicle. The fund, to be linked with a single premium endowment policy, guarantees the capital invested and offers the advantages of mutual funds. Due to the new funds and effi cient cooperation with Sampo Bank’s branches, premiums written in unit-linked savings policies increased by almost 50 per cent and Sampo’s market share grew to one-third.
Sampo Life’s investment activities out-performed the market. Return on investment at current values increased to 9.5 per cent p.a. and the company’s solvency ratio rose to 17.8 per cent.
Sampo Life can reach a large customer base, thanks to its extensive distribution network. In addition to Sampo Bank’s branches, important sales channels were agents and If P&C Insurance. The co-operation with statutory pension insurer Varma was also successful. Routine customer service tasks were channelled to the telephone and web-based services. As a result of clearly organised responsibilities, service level and cost-effi ciency improved. The effects of these reorganisations are already visible, as Sampo Life’s expense ratio improved to 87 per cent.
The government’s statement on the taxation of pension insurance and the memorandum of the SIVA workgroup that studied the competition between long-term savings products had an effect on sales in late 2003. To ensure success in the future and to operate in an environment where legislation is changing, Sampo Life must continuously develop its products and services. Forms of life insurance saving which combine the return potential of equity markets with elements lowering customer risk will increase in importance. Sampo Life’s competence and strong position in both the retail and corporate customer segments and its comprehensive product portfolio constitute a solid basis on which to build solutions that will prosper amid future changes.
Mutual funds – fund assets exceed EUR 5 billion Sampo’s mutual funds are administrated by Sampo Fund Management Ltd. The mutual funds’ assets are managed by Mandatum Asset Management Ltd, 3C Asset Management Ltd (specialist in absolute return funds) and carefully chosen foreign asset management companies.
The equity market’s recovery and the historically low level of short-term euribor rates prompted growth in the demand for equity funds in late 2003. Thus, the net infl ow to equity funds doubled in this period, compared to the early year.
Positive equity market trends were also refl ected in Sampo’s mutual funds. In recent years, tens of thousands of new mutual fund investors have become familiar with money market funds. With rates at low levels and equity markets recovering, customers were advised to shift from fi xed income investments to products with better longterm returns. Of the net infl ow into Sampo’s mutual funds during the year, totalling over EUR 1 billion, money market funds accounted for less than one-third.
The number of fund unit holders continued to grow strongly, from less than 200,000 to almost 240,000. Continuous agreements, one of the areas of focus, gained popularity, increasing from 54,000 to almost 80,000 during the year. Competitors of the previous years market leader, Sampo, became much more active. Thus, despite strong growth in the number of fund unit holders, Sampo’s share of total mutual fund assets decreased by 2.5 percentage points to 22.0 per cent. At the end of 2003, Sampo was the second-largest mutual fund management company in Finland, in terms of fund savings.
The streamlining of Sampo’s range of funds continued in 2003 with the merging of seven funds with very similar investment policies. Sampo introduced Finland’s fi rst fi xed income fund that emphasises sustainable development in its investments. Sampo also introduced a new long-short strategy hedge fund, 3C Edge, managed by 3C Asset Management.
Asset management – still Finland’s largest Mandatum Asset Management Ltd is Sampo’s asset manager for corporate and institutional customers. Private equity funds are managed by Mandatum Private Equity Funds Ltd.
Amid the challenges of 2003, customer confi dence in Mandatum Asset Management increased and the volume of assets managed by the company rose. In the institutional markets where competition was tough, Mandatum Asset Management successfully established new customer relationships and maintained its market leading position. The volume of assets managed increased by EUR 2.4 billion, totalling EUR 18.1 billion by year’s end. Particularly in the gloomy investment environment early in the year, customers resorted to liquid forms of investment.
During 2003, Mandatum Asset Management substantially developed its operations to better meet customers’ rapidly changing needs. Strategic investment and risk management were reorganised and, together with customer relationship management, will play an increasingly important role. Thus Mandatum Asset Management is better prepared in an ever more competitive world of asset management that seems to change at an ever-faster pace.
In 2003, Mandatum Private Equity Funds Ltd bolstered its position as manager of the largest private equity fund portfolio in Finland. In addition to Sampo’s private equity funds investments, the company manages the investment portfolio of Amanda Capital Plc. Mandatum Private Equity Funds is the general partner of the private equity funds (Mandatum Pääomarahastot I and II) it has established. Mandatum Pääomarahastot I raised EUR 50 million from Finnish institutions and was closed in May. Investment commitments made for the new Mandatum Pääomarahastot II totalled EUR 20 million. Mandatum Private Equity Funds annually handles about 200 investment proposals of which it invests in 5-10 private equity funds. The value of investment commitments managed by the company CONTINUES
Sampo launched its banking operations in the Baltic region by acquiring local banks in Estonia and Lithuania at the end of 2000. The Estonian bank is AS Sampo Pank and the Lithuanian bank is UAB Sampo bankas. Sampo Pank has 13 branches in the largest towns, while Sampo bankas will increase its branches from 8 to 10 during 2004.
In its fi fth year of operations the life insurance company in Latvia, AAS Sampo Dziviba, recorded a 64 per cent increase in premiums written, compared to 35 per cent growth in the market as a whole. The company ’s market share grew to 13 per cent.
The Polish life insurance provider Sampo Towarzystwo Ubezpieczen na Zycie S.A. and pension company Sampo Powszechne Towarzystwo Emerytalne S.A. both joined Sampo at the end of 2000. Restructuring continued at the life insurance company, resulting in a 58 per cent decrease in administrative expenses from the previous year. At the same time, however, the company increased premiums written on new sales by 46 per cent. The company has over 15,000 customers. The pension company offers statutory Pillar II pension insurance. At the end of the year it had more than 525,000 customers. It managed assets totalling EUR 292 million and had a market share of 3 per cent.
Membership in the European Securities Network (ESN) provides new opportunities in 2004 to develop business with institutions both in Finland and abroad. The ability to provide analyst and brokerage services in the euro zone increases the company’s potential to operate as the business partner of larger institutions, too. Furthermore, the channel provides better possibilities in the brokerage of domestic shares outside Finland.
2003 was a year of strong growth for the Realty World (Kiinteistömaailma) chain, with turnover increasing by one fi fth.
Apartment prices continued to follow a rising trend in 2003. It is estimated that prices rose 6-7 per cent during the year. According to preliminary information approximately 70,000 apartment transactions were completed in Finland during the year, which is an increase of around four per cent from the previous year. Realty World therefore achieved a considerably higher rate of growth than the markets. During the year Realty World opened nine new real estate agencies. New sales staff were recruited, particularly in the Helsinki Area.
Owner occupation has grown in Finland, a trend that has been boosted by low interest rates for housing loans. In 2003 the proportion of fi rst-time buyers increased to one quarter of all purchasers. A survey conducted by Realty World showed that fi rst-time buyers still enter the market by buying small apartments, then gradually trade up. On average fi rst-time buyers choose a home of around 65 m2.
In September Realty World became the fi rst real estate agency in Finland to launch insurance cover for household appliances. This insurance, which was well received by customers, covers the repair of an appliance or purchase of an equivalent new unit, subject to conditions, with no customer excess, if an appliance acquired in a property transaction breaks down within half a year of the transfer of possession of the property. This benefi t is provided free-of-charge to both the property buyer and seller. The insurance is granted by If P&C Insurance Company.
In 2003 If P&C Insurance continued to improve results and its cash fl ow remained strong. The low loss ratio, the effects of the profi tability programme and the more positive investment climate will ensure that this good performance continues.
If operates in four segments - Private, Commercial, Industrial and the Baltic region. As the organisation is Pan-Nordic, If can realise scale benefi ts, such as best practices from different countries while, at the same time, adapting its customer contacts and products to local market conditions.
At the end of 2003 Sampo’s holding of If P&C Insurance Company was 38.05 per cent. In February 2004, Sampo announced a rise in its ownership of If to 89.94 per cent in early 2004. The arrangement will clarify If’s ownership structure and facilitate the further development of the company. The share transaction will have no effect on If’s customer service.
Whereas the combined ratio was 113.1 per cent (pro forma) at the beginning of the profi tability programme in 2001, it fell to 100.9 per cent by 2003 due to increased premiums, improved loss ratio and increased cost-effi ciency.
It can be assumed that in the coming years If will press the combined ratio well below 100 per cent. If’s combined ratio target for 2004-2006 is 97-99 per cent and target for ROE 15 per cent.
The upturn in equity markets affected the investment results signifi cantly, even though, now that the P&C business itself is healthier, the result is no longer so dependent on the equity markets. The result was also improved last year by positive performance on the fi xed income markets. The investment return was 4.6 per cent. As equity markets recovered If increased the allocation to equities in the end of the year to 8 percent. The duration on interest bearing securities was kept short.
Concerning If’s business areas, Private performed strongly throughout the year, with the combined ratio reaching 98.7 per cent. The biggest improvements in Private business area were taken in Denmark and Norway. The Commercial customer segment’s combined ratio also ended close to 100 per cent. In the Industrial business area, If continues profi tability action, even though combined ratio improved. The combined ratio of the Industrial customer segment was reduced to 102.7 from 109.7 per cent in 2003.
Promising outlook for the P&C insurance business The P&C insurance business will continue to perform successfully, founded on a combined ratio that has dropped below 100 per cent. If’s earnings will be supported by the upswing that has begun in the equity markets. If is now in the fi nal stages of its effi ciency enhancement programme and is set to produce considerably better results than in the past.
13 March Kari A.J. Järvinen was appointed Managing Director of Mandatum & Co Ltd, the corporate fi nance unit of Sampo Group.
9 April Sampo’s Annual General Meeting elected Anne Brunila as a new member of the Board of Directors, in addition to re-electing the existing members.
15 May Sampsa Laine was appointed Managing Director of Mandatum Stockbrokers Ltd.
27 May Sampo announced the merger of Sampo Card Ltd into Sampo Bank plc, to take effect at the beginning of 2004.
2 June Rationalisation negotiations were started in Sampo Bank. At their conclusion on 30 September, staff reductions of 346 persons were announced.
8 September Sampo Bank became the fi rst in Finland to launch a comprehensive fi nancial management package for university students.
12 September Sampo Life launched the Positive 2008 mutual fund with a capital guarantee, which is linked to Sampo’s investement insurance.
29 October Sampo Bank announced a reform of its retail customer accounts, to take effect on 1 February 2004.
Sampo-Leonia perty & casualty insurance b into the If Group, becoming the largest nnounced an increase in its ownership
With the exception of Anne Brunila, Paavo Pitkänen and Björn Wahlroos, the Board members are independent members.
Sampo Group’s Executive Committee, appointed by the Board of Directors, supports the CEO in the preparation of strategic issues relating to Sampo Group, in the handling of operating matters that are signifi cant or involve questions of principle, and in ensuring a good internal fl ow of information.
Patrick Lapveteläinen CIO; Treasury and Trading Petri Niemisvirta Head of Life Insurance Business,
Managing Director of Sampo Life Maarit Näkyvä Executive Vice President, Head of
The Board of Directors has appointed a Risk Control Committee to control Sampo Group’s risks at the Group level. The Risk Control Committee is responsible for supervising the preparation of and compliance with Sampo Group’s risk management principles and other related guidelines, supervising Sampo Group’s risks and risk accumulations and the quality and scope of risk management, and monitoring the implementation of risk policies, the use of limits and the development of risks and profi t in the various business areas. The Risk Control Committee comprises the Chairman of the Board and two or three members elected from among the members of the Board. Also participating in the meetings of the Committee are the CEO, the respective chairmen of the Group’s Asset and Liability Committee, Investment Committee and Credit Committee, the member of the Group’s Executive Committee responsible for risk control, the Head of Risk Control and any other people elected at the discretion of the Board.
The Risk Control Committee comprises Olli-Pekka Kallasvuo (Chairman), Tom Berglund, Anne Brunila and Paavo Pitkänen. Also participating in the meetings are Björn Wahlroos, Kari Stadigh, Ilkka Hallavo, Mika Ihamuotila, Peter Johansson, Patrick Lapveteläinen and Petri Viertiö. The Risk Control Committee met four times in 2003.
The period of notice for terminating the service contract of the CEO of Sampo Group is six months. In addition to receiving salary for the period of notice, the CEO will be entitled to severance compensation of 18 months’ full salary (not including bonuses), provided the service contract has been terminated by Sampo.
Members of the Board will be paid a daily travel allowance corresponding to the maximum, valid, tax-exempt travel allowance permitted by the tax authorities and will be reimbursed for accommodation and travel expenses. Board members employed by the company don´t receive separate compensation for Board work.
Members of the Board of Directors were paid a total of EUR 289,460 for their work on the Board and its commit-
The Board of Directors decides on the terms of employment and compensation of the CEO and other executives on Sampo Group’s Executive Committee on the basis of a proposal made by the Nomination and Compensation Committee.
In addition to receiving monthly salaries, executives who are members of the Group’s Executive Committee are participants in the Group’s profi t bonus system which is decided upon separately each year. The criteria used in determining the profi t bonus are the Group’s result, the business area’s result and the individual performance of the person in question. The maximum profi t bonus that can be paid for 2003 to executives who are members of the Executive Committee is an amount corresponding to nine-months’ salary.
With the exception of the Chief Executive Offi cer, the members of the Group Executive Committee are also participants in the long-term incentive system for Sampo plc’s executive management. The performance bonus to be paid on the basis of the incentive system is determined by the performance of the value of Sampo’s A share (up to a maximum of EUR 19 per share) and the performance of Sampo’s RORAC (return on risk allocated capital).
The terms of the incentive system are available on Sampo’s web pages at www.sampo.fi /ir.
The Group’s Chief Executive Offi cer will be paid longterm compensation based on his employment contract, the payment of which the Board will decide separately in compliance, as applicable, with the principles of the long-term incentive system for Sampo’s executive management.
All the options of the year 2000 Sampo option programme have been the subject of trading in the Helsinki Exchanges since 2 January 2004.
In 2003, the fees paid to the external auditor, for auditing services as invoiced, totalled EUR 949,975. In addition, the fees paid to the fi rm of external auditors for non-audit services as invoiced, totalled EUR 243,977.
Internal Audit reports their observations to the heads of the lines, the Chief Executive Offi cer and the Board’s Audit Committee.
Insider Administration Sampo’s Board of Directors has approved Sampo Group’s Guidelines for Insiders. These comply with the Guidelines for Insiders issued by the Helsinki Exchanges, the Guidelines for Insiders and Trading of the Finnish Association of Securities Dealers and the Finnish Association of Mutual Funds, the Insider Guidelines for Investment Activities issued by the Federation of Finnish Insurance Companies and the Regulations of the Financial Supervision Authority. 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 specifi cally-named persons, as these persons must ask for separate written permission in advance for each share-related securities transaction they make.
Sampo plc’s insider guidelines and insider register may be viewed on the Internet at www.sampo.fi /english, see Investor Relations/Shares and Options/Insiders.
Chairman Olli-Pekka Kallasvuo, born 1953 CFO and Member of the Executive Group of Nokia Corporation (Executive Vice President & General Manager, Mobile Phones, Nokia Corporation from 1 January 2004)
Chairman of the Boards of F-Secure Corporation and Nextrom Holding S.A.
Tom Berglund, born 1951 Professor, Vice-Rector of the Swedish School of Economics and Business Administration
He was appointed member of the Board of Directors of Sampo plc on 26 June, 1992
He holds 3,600 Sampo plc shares directly or through a controlled company
Christoffer Taxell, born 1948 Minister (Chancellor, Åbo Akademi University from 1 January 2004)
Chairman of the Boards of Finnair Oyj and Stiftelsen för Åbo Akademi, member of the Boards of Nordkalk Corporation, Boliden AB, Raisio Yhtymä Oyj and Stockmann Oyj Abp
He transferred to the Board of Directors of Sampo plc from the Supervisory Board on 1 January, 1998
He holds 11,839,890 Sampo plc shares directly or through a controlled company
He holds 11,839,890 Sampo plc shares directly or through controlled company Options (1998 programme): Options (2000 programme): -
Member of the Boards of HEX Integrated Markets Ltd and Stockholmsbörsen AB, member of the Legal Committee of the Central Chamber of Commerce, Chairman of the Delegation of the Investors’ Compensation Fund, member of the Delegation of the Deposit Insurance Fund of the Commercial Banks and Postipankki Oy, and member of the Delegation of the Deposit Insurance Fund
She holds 297,720 Sampo plc shares directly or through controlled company Options (1998 programme): Options (2000 programme): 50,000
Ilkka Hallavo, born 1956 Head of Corporate Banking; Managing Director, Sampo Bank plc
Mika Ihamuotila, born 1964 Executive Vice President; Head of Banking; Chairman of the Board of Management, Sampo Bank plc
Peter Johansson, born 1957 CFO; Financial Control, Corporate Development and Human Resources
Member of the Boards of If P&C Insurance Holding Ltd, EQT Finland B.V. and Bravida ASA
He holds 80,485 Sampo plc shares directly or through controlled company Options (1998 programme): Options (2000 programme): 50,000
Petri Niemisvirta, born 1970 Head of Life Insurance Business; Managing Director, Sampo Life Insurance Company Limited
Member of the Boards of the Federation of Finnish Insurance Companies and the Consumers’ Insurance Offi ce
The CVs of members of the Group Executive Committee can be viewed on the Internet at www.sampo.com, see Investor Relations/Sampo Group/Management.
At the end of the year, Sampo Group’s staff was 5,265, compared with 5,848 one year earlier. In recent years, a large proportion of customers have begun to use banking services through the web bank, which has necessitated rearrangements in the retail customer network. As a result of the rationalisation negotiations concerning mainly Sampo Bank’s retail customer business and telephone banking, Sampo’s staff reduced by 346 employees. Almost all reductions were implemented without redundancies.
The new service, Personal Financial Plan, was offered to retail customers. The Personal Financial Plan software to be used by customers and Sampo representatives together, was introduced as a tool for a new kind of customer meeting. More than 700 Sampo employees completed courses in the use of the software and the related com-
Staff petence test. In addition, customer advisors and fi nancial specialists developed their competence in subjects such as fi nancing and investment. Altogether 300 Sampo employees participated in these courses.
The salaries of managers, specialists and executives (excluding the Group Executive Committee, whose compensation system is presented in “Corporate Governance ”, p.19-21) are determined on the basis of the Hay job diffi culty evaluation system. Sampo’s managers and
Options programme, performance bonus system and the personnel fund complement salary systems The year 2000 options programme ended on 2 January 2004. The options are listed in the Helsinki Exchanges. The share subscription period with the options will end in 2007.
All staff groups in Sampo are covered by a performance bonus system. Unit or team results and personal performance are the criteria for the payment of the bonuses.
Occupational health and well-being services were offered along the lines defi ned in 2002. The continuation phase of the well-being at work project for branch managers of the retail customer network was commenced in co-operation with Varma-Sampo’s (now under the name Varma) Evita services. The focus teams, consisting of branch managers, discussed methods and developed tools to help them actively facilitate change and, at the same time, serve as trainers and support persons. Other work groups promoting well-being at work in the Group’s units continued projects on competence, working community, management and safe working environments.
Sampo supports the staff’s physical activities which are organised by local providers of sports services throughout Finland. As an extra staff benefi t, Sampo also offers the possibility to economically reserve holiday weeks in leisure accommodation in Finland or in exchange resorts abroad.
Positive results in work satisfaction survey A response rate of 73 per cent was recorded in the staff survey on work satisfaction, carried out in late autumn. This was 5 percentage points higher than in the corresponding survey one year before. As in the previous year, the overall satisfaction of Sampo employees was rated 8 on a scale of 4 to 10. The satisfaction of clerical staff had decreased slightly from the previous survey, while the satisfaction of other groups of employees had remained as it was or increased.
Many issues related to CR made headlines in 2003. Public discussion was aroused by the environmental risks related to Baltic Sea transportation and the felling of old forests, both matters of importance to Finland. The role of environmental taxation in the Finnish tax system was also discussed along with the reform for corporate taxation.
Sampo’s corporate responsibility year 2003 Sampo provides its customers primarily with solutions that promote saving and thus prepare for the challenges of population ageing. Sampo also supplemented its range of CR products. It became the fi rst in Finland to add a fi xed income fund to its sustainability fund family, alongside with the equity fund.
In March, Oekom Research AG published its fi rst CR rating for Sampo. Sampo received a C+ rating and was 9th in a comparison group of 70 companies. Additionally, Sampo ’s share was included in Kempen’s SNS Smaller Europe SRI index and the new Nordic Sustainability index, which
ETHICALITY: In 2003, customers were encouraged to take the initiative to secure their fi nances for future years and decades. Sampo developed its solution-centered customer orientation by giving all retail customers the opportunity to prepare a Personal Financial Plan together with the bank’s experts. The Personal Financial Plan will combine all the separate areas of the customer’s fi nances into a comprehensive future plan. Training of customer service staff continued. Co-operation with trade unions was also strengthened as part of efforts towards a solution-centred approach.
It was decided within the fund management company to revise the ownership policy, and information on these changes will be published in 2004. To provide customers with up-to-date fund information, the web site service was established, through which customers can get information on the value of their investment every day and on the content of their fund portfolio on a weekly basis.
ENTERPRISE: The operational concept of retail customer branches was renewed. The branches are now increasingly considered as profi t centres, whose profi tability, costs and sales result are measured more exactly. At the same time, organisational revisions were made and the operations of branches were divided into three basic functions: customer service, customer relationship and customer acquisition. Branch managers are expected to encourage employees and establish the best possible conditions for profi t making. Mandatum Stockbrokers developed an incentive system, in which the analysts’ fees depend on the accuracy of their recommendations and quality of analysis. At the same time, the communication between the analysts and customers was enhanced.
Co-operation with schools was promoted by means of a donation project and also by educational means. Sampo’s most signifi cant educational co-operation project involves the Helsinki Business Polytechnic, Helia. Sampo offers training positions and thesis work topics to polytechnic students. Positive results have reported from projects in which specially prepared students provide training in the use of the web bank. Within the Group, staff received training through the Sampo Business School.
Sampo’s revised donation policy was received very positively. Sampo received almost 900 applications from groups of comprehensive schools and general upper secondary schools throughout Finland.
A board composed of representatives of Sampo, the Trade Union of Education in Finland, and the Union of Finnish Upper Secondary School Students selected a total of 57 donation targets, and divided the donation of EUR 200,000 between them.
Donations to individual schools ranged from EUR 260 to EUR 5,000. The majority of donations were for the acquisition of books for school libraries, sports gear, fi rst aid and safety training and other civic skills projects.
On 31 December, 2003, Group companies did not own any shares in the parent company, but Satura Oy, a wholly owned subsidiary of Sampo plc, owned 23,175 of the 1998 A/B/C warrants and 1,030,250 of the 2000 A/B options.
Changes in share capital On 9 April, 2003 the Annual General Meeting approved a proposal by the Board of Directors to decrease the share capital by the total counter book value of approximately EUR 409,436.69 of the Sampo shares that had been bought back by 24 February, 2003. The decrease in share capital was implemented through the cancellation without consideration of the 2,434,400 Sampo A shares bought
Authorisations given to the Board of Directors The Annual General Meeting authorised the Board of Directors to buy back and convey Sampo’s own shares. The authorisation is valid until 9 April, 2004. The maximum amount of A shares that can be bought back is 5 per cent of the company’s share capital or of the number of votes attached to all shares. Shares can be bought back either by an offer made to all holders of A shares in proportion to their holdings and on equal terms determined by the Board, or through public trading on the Helsinki Exchanges, in which case the shares will not be bought in proportion to the shareholders’ holdings.
Shares can be bought back to improve the company’s capital structure, to fi nance corporate acquisitions or other reorganisations, or to be otherwise further conveyed or cancelled. During the year under review Sampo plc did not buy back its own shares.
Mode of Subscription Terms of subscription Number Share capital increase/ period/ or subscriber of new after increase/ decrease Registration or reason for decrease shares decrease
Decrease in 4 May, 2000 Cancellation of shares bought -1,520,000 50.86 share capital back (1,520,000 A shares)
Exchange offer 7 February, 2001 Mandatum 4,754,255 91.46 consideration, A shares shareholders
Exchange offer 23 February, 2001 Mandatum 2,362,738 93.44 consideration, A shares shareholders
1998 bond with warrants On 22 May, 1998, Sampo issued a bond with warrants valued at approximately EUR 1.1 million. The bond, which did not pay interest, was repaid on 22 May, 2001. All the staff permanently employed by the Sampo Group and Kaleva Mutual Insurance Company were entitled to subscribe. Around 72 per cent of the staff employed at the time utilised their entitlement to subscribe.
Five Sampo A shares can be subscribed for with each warrant. The subscription period ends on 31 May, 2005.
As a result of the subscriptions, the share capital can increase by a maximum of 16,500,000 A shares, or by a maximum of some EUR 2.8 million, which equals approximately 3 per cent of the company’s share capital as at 31 December, 2003. At the end of the year under review there are 3,089,870 of the A/B/C warrants still unexercised.
The subscription price is EUR 8.44. If the Annual General Meeting approves the Board’s proposed dividend distribution for 2003 the subscription price will be reduced to EUR 6.94.
As a result of the subscriptions, the number of Sampo shares can increase by a maximum of 26,000,000 new shares and the share capital by a maximum of EUR 4,372,886.09, which equalled approximately 4.7 per cent of the share capital as of the end of 2003.
At the end of the year the members of the Board of Directors and the CEO owned, directly or indirectly, a total of 11,858,395 Sampo shares. Their total holdings constituted 2.1 per cent of the share capital and votes.
To be entitled to participate in the Annual General Meeting, shareholders and nominee-registered shareholders must register with Sampo’s Equity Issues Department by 4 p.m. on 31 March, 2004.
Dividends and dividend payment policy The Board of Directors has decided to deviate from its dividend policy, by which about 50 per cent of the profi t for the fi nancial year was distributed as dividends, and proposes that a dividend of EUR 1.50 per share be distributed to shareholders, totalling EUR 831.3 million. The exceptionally large dividend is made possible by Sampo Group’s capitalisation, which the Board considers excessive in the current operating environment.
Shareholdings Number of Number of A and B shares shareholders shares %
On waiting list 0 On joint account 8,258,960 1.49 *) Each nominee register is included in this fi gure as one single owner.
Number of % of % of A and B shares shares share capital votes
Shares and shareholders 1 Public companies 0.12% 2 Private companies 4.74% 3 Financial institutions and insurance companies 31.80%
The investments of the Group’s life insurance companies performed well and net investment income increased to EUR 387 million (193). As cost effi ciency improved substantially at the same time, the profi t before extraordinary items of life insurance increased by 150 per cent to EUR 195 million (78). In banking and fi nancial services low interest rates depressed the net income from fi nancial operations, which dropped to EUR 404 million (448). Although administrative expenses decreased and provisions for bad and doubtful debts were low, the operating profi t decreased by almost 8 per cent to EUR 233 million (252). The profi tability of the associated company, If, improved markedly and the company’s combined ratio for the full year 2003 was 100.9 per cent (106.1). Sampo Group’s share of If’s net profi t for the year was EUR 84 million, whereas one year earlier the Group had recorded a loss of EUR 69 million from its holding.
Changes in Group structure On 31 December 2003, Sampo Card Ltd. was merged with Sampo Bank as part of the Group’s internal rearrangements. Sampo Card was Sampo Bank’s wholly-owned subsidiary focusing on the card business. The purpose of the merger is to streamline the Group’s structure.
In the spring, Sampo Life’s capital structure was diversifi ed through several transactions. Sampo Credit plc fi rst subscribed to a subordinated loan issued by Sampo Life amounting to EUR 100 million. At the same time, Sampo plc subscribed to an increase in Sampo Life’s share capital amounting to EUR 50 million. After this, Sampo
Sampo plc agreed after the end of the fi nancial year on 11 February 2004 to acquire the shareholdings of the Swedish company Skandia and its subsidiary Skandia Liv and of the Norwegian company Storebrand in If Holding Ab. Following the transaction Sampo will own 89.94 per cent of If and If will become a subsidiary of Sampo. Varma Mutual Pension Insurance Company will maintain its holding of 10.06 per cent in If. The agreed price is EUR 1.4 billion (SEK 12.5 billion). And the transaction is conditional on the receipt of the necessary offi cial permits. Sampo will fi nance the share transaction with subordinated capital and other long-term funding. After the transaction Sampo will have three main businesses: P&C insurance, banking and longterm savings. The transaction will have no effect on the position of customers and the staff.
The Board decided on 1 April 2003 to establish an audit committee to monitor Sampo Group’s internal auditing and auditors, the professional competence and independence of these auditors and the validity of Sampo Group’s fi nancial accounts. The Board also decided that the risk control committee may no longer include members who are not members of the Board of Directors.
The Annual General Meeting decided to elect one auditor for the company, namely Ernst & Young Oy, until the close of the next Annual General Meeting.
Changes in share capital Sampo’s year 1998 A/B/C warrants and year 2000 A/B options are listed on the main list of the Helsinki Exchanges. The A options of the year 2000 option programme were approved for trading on the Helsinki Exchanges from 2 January 2003 and the B options from 2 January 2004, at which time they were combined under the name 2000 A/B options.
The Annual General Meeting held on 9 April 2003 approved the Board’s proposal to decrease the share capital by the combined counter value of the company’s own
Shares can be bought back to develop the company’s capital structure, to fi nance acquisitions or other reorganisations, or to be otherwise further conveyed or cancelled. Sampo’s own shares were not bought back during the year under review.
As a result of the decrease in share capital and the share subscriptions completed, Sampo plc’s share capital on 31 December 2003 was EUR 93,162,650.32. The total number of shares was 553,919,965, including the 1,200,000 B shares.
Staff The Group’s staff decreased during the year by 583 persons and was 5,265 (5,848). 80 per cent of the staff worked in banking and investment services, 7 per cent in life insurance, 2 per cent in the holding company, and 11 per cent in Primasoft. The average number of staff in the year under review was 5,529, compared with 5,977 in 2002.
Net income from fi nancial operations 100 97 101 106 111
Net income from transactions in securities and foreign exchange dealing 11 -2 -1 4 7
Depreciation and write-down of tangible and intangible assets -13 -7 -6 -7 -12
Write-offs in respect to debt securities held as fi nancial fi xed assets - - - - -
Income from companies accounted for by the equity method 0 1 1 1 0
Change in technical provisions before customer bonuses and change in equalisation provision -91 -85 -70 -38 -112
Life insurance profi t before extraordinary items 65 50 51 30 33
Net income from transactions in securities and foreign exchange dealing -1 5 12 -13 13
Write-offs in respect to debt securities held as fi nancial fi xed assets 0 0 - - -
Profi t before appropriations and tax 136 142 123 76 87
Group profi t for the accounting period 99 108 91 55 91 mainly concerned the retail customer business and the telephone bank. Employees affected by the reductions have been able to participate in Sampo’s support programmes. The staff reductions will result in cost savings of more than EUR 25 million, which will be realised in full in 2004.
Ltd, Mandatum Stockbrokers Ltd, Mandatum & Co Ltd, Sampo Finance Ltd, Sampo Credit plc, Mandatum Private Equity Funds Ltd and 3C Asset Management Ltd. The Sampo PTE S.A pension fund company in Poland and AS Sampo Pank in Estonia and UAB Sampo bankas in Lithuania are also included in Sampo’s banking and investment services. The branch network also operates as a distribution channel for a wide range of advisory services and long-term savings products.
Amount of loans on the increase Sampo Group’s loan portfolio grew by 11 per cent in one year. The downward trend in the domestic corporate loan portfolio ceased in the autumn, and at the turn of the year corporate loans were up by 3 per cent compared with the end of 2002. Following the strategy adopted, foreign assets continued to contract at over EUR 400 million per year. Corporate loan spreads widened during the year under review. The increase in the loan portfolio was based on strong demand for housing loans, as the volume of all loans to households grew to EUR 6,672 million (5,715). At the end of the year, Sampo’s market share of all loans granted by Finnish fi nancial institutions was above 14 per cent.
Bad and doubtful debts remained low and non-performing loans contracted Net provisions for bad and doubtful debts had no impact on the result, because new provisions and recoveries were of equal size. Provisions for bad and doubtful debts written during the year under review totalled EUR 11 million (7). At the end of the year, provisions pooled by customer group on the basis of customer credit ratings were EUR 37 million (32). The amount of non-performing loans stood at EUR 61 million (77) at the end of the year, while other non-interest-earning loans totalled EUR 1 million (2). Of these, corporate and institutional customers accounted for EUR 31 million and households likewise for EUR 31 million.
Mainly due to the increase in funds and consultative asset management, the total amount of assets under discretionary management within Sampo Group increased to more than EUR 19.7 billion (17.1). This fi gure includes mutual fund assets of EUR 5.2 billion and investments by Sampo Group companies amounting to around EUR 4.2 billion. The other assets managed by Sampo, amounting to EUR 10.3 billion, included EUR 6.1 billion in consultative assets. Almost EUR 18.1 billion of the assets were held under discretionary management agreements by Mandatum Asset Management. Growth was promoted particularly by the favourable performance of the stock markets. Mandatum Private Equity Funds had more than EUR 800 million under management and 3C over EUR 500 million.
The above fi gures do not contain the Polish pension fund management company, Sampo PTE, which had approximately EUR 292 million of assets under management at the end of the year. Assets grew approximately 50 per cent in Polish zloties. The number of fund members, which has rapidly increased since the spring, totalled 526,435 in December.
Sampo Bank’s credit rating rose In July 2003, Moody’s Investors Service upgraded Sampo Bank’s long-term funding from A2 to A1 and raised the Bank’s fi nancial strength rating from C+ to B-. At the same time, Moody’s confi rmed Sampo Bank’s short-term funding at Prime-1. The ratings given to Sampo Bank by Standard & Poor’s did not change in 2003, but in January 2004 Standard & Poor’s revised its credit rating outlook from negative to stable.
Sampo Group is calculated according to the provisions of the Act on Credit Institutions. The Group’s capital adequacy ratio was 12.4 per cent (17.3). The Tier 1 capital ratio was 13.5 per cent (18.7). The Tier 1 capital ratio is higher because the parent company’s holdings in insurance companies, which are deducted from the total capital, are higher than Tier 2 assets. The decline in capital adequacy derives largely from the proposed dividend of EUR 831 million, which has been deducted from the Tier 1 capital. The consolidated group comprises Sampo Bank Group, Sampo Credit plc, AS Sampo Pank, UAB Sampo bankas, Sampo PTE, Sampo Fund Management Ltd, Mandatum Asset Management Ltd, Mandatum Private Equity Funds Ltd, Mandatum Stockbrokers Ltd, Mandatum & Co Ltd, 3C Asset Management Ltd and the parent company Sampo plc.
Life insurance The core of the Group’s life insurance business is Sampo Life, operating in Finland. The business area also includes life insurance companies located in the three Baltic states and Sampo T.U. Zycie in Poland.
Sales of Sampo Life’s insurance products went well in the year under review, although uncertainty about coming legislation concerning individual pension insurance policies and the transition provisions that may be linked to it weakened December’s new sales fi gures. It is believed that the situation will become clear by summer 2004. For the same reason, an exceptionally large amount of premiums were accumulated on old insurance policies.
Sampo Group’s life insurance companies operating in the Baltic states continued to grow vigorously and their market positions strengthened. Premiums written by these companies nearly doubled to reach approximately EUR 8 million (4). Sampo T.U. Zycie in Poland, which sells unitlinked policies, performed more modestly in diffi cult market conditions, gathering premiums written amounting to EUR 5 million (7). All four companies have operated for only a short time and their effect on the Group’s operating profi t is small.
The premiums gathered by Sampo Life’s unit-linked policies grew considerably faster than average growth in the sector and the company’s market share in unit-linked insurance was 28.5 per cent (25.3). In the other area of focus, the retail customer segment excluding with-profi t savings policies, the company’s market share grew compared with the previous year, being 24.8 per cent (22.4) at the end of 2003. The company’s overall market share declined to 17.6 per cent (18.2).
The operating profi t of life insurance more than doubled and rose to EUR 182 million (86). The improved result was based on successful investment activity, but also on favourable performance with regard to operating expenses. Operating expenses were reduced in the year under review by one fi fth to EUR 42 million (53). In Sampo Life, especially those expenses that were not related to sales were reduced signifi cantly and the operating expenses ratio improved by 10 percentage points to 87 per cent. Sampo Life does not capitalise the sales expenses of insurance policies.
Holding company The holding company’s main function is to own and control subsidiaries engaged in banking, investment services and life insurance.
The holding company recorded an operating loss of EUR 14 million (277) for the year under review. The comparison fi gure for 2002 includes a sales profi t of EUR 261 million related to the If rearrangements.
Sampo’s holding in the Swedish Skandia Insurance Company Ltd (publ) exceeded 5 percent on 23 January 2003. The Group’s holding has not changed after the fi rst quarter and was 7.37 per cent at the end of year 2003.
Sampo owns 38.05 per cent of the leading Nordic P&C insurance company If. The company has 3.8 million clients and approximately 24 per cent of market share in the Nordic P&C insurance market. If is active in four business areas: Private, Commercial, Industrial and the Baltics. In October 2003 the company sold its Marine and Energy business, which did not fi t well with strategy. The sale releases capital and diminishes volatility in profi ts.
In May 2002 Sampo started a project whose purpose is to create the conditions for Sampo Group’s fl exible transition to the application of the IFRS standards in its fi nancial information when the standards enter into force at the beginning of 2005.
Outlook The outlook for the global economy is brighter as growth has accelerated, especially in the United States. This trend will improve the conditions for the profi table growth of Sampo Group’s businesses.
Sampo plc Board of Directors’ report ing will probably be modest. It is expected that lending will continue to increase and that provisions for bad and doubtful debts will remain at a low level. Fees and commissions receivable are forecast to grow slightly from last year. Growth will be the strongest in capital market dependent fees. The cost effi ciency measures carried out in 2003 will be fully refl ected in results this year. The growth of the Group’s banks operating in the Baltic countries is expected to continue at a fast rate.
It is forecast that mutual fund savings will be focused more sharply on equity and balanced funds and that the powerful growth in the assets of Sampo’s fund management company will continue. Sampo’s strong position on the fund markets will be supported by new product solutions.
Board’s dividend proposal Distributable capital and reserves totalled EUR 1,495,210,292.08 in the Group and EUR 1,103,964,124.07 in the parent company. The Board proposes that a dividend for the fi nancial year of EUR 1.50 per share be paid on the company’s 554,201,215 shares. The number of shares comprises the 281,250 shares converted in 2003 with the warrants, which were approved by the Board on 11 February 2004. The total amount of dividends would be EUR 831,301,822.50.
Write-offs in respect of debt securities held as fi nancial fi xed assets 5 - 0
EUR m Notes 2003 2002 Technical account - Life insurance business
Income from companies accounted for by the equity method 1 3
Loans and advances to customers 27, 30, 66, 67 13,908 12,490
The major risks associated with Sampo Group’s business companies are credit risks, the interest rate and liquidity risks of non-trading positions, the market risks of investment portfolios, insurance risks and the operational risks inherent in every kind of activity. Market risks in trading activities are minimal. The parent company, Sampo plc, acts as the holding company.
Sampo Group regularly evaluates the risks of its business areas and the suffi ciency of the companies’ capitalisation in relation to their risks. These evaluations are made at the individual company level and at the Group level.
Economic capital The overall risk situation in Sampo Group is aggregated through economic capital. Economic capital is an internal tool of Sampo which describes the capital required in the Group in order to bear different kinds of risks. As a company in the fi nancial services sector, Sampo’s
Notes to the Accounts 52 Notes to the Accounts 52 Risk Management 64 Accounting Policies 70 Calculation Methods for the Key Figures 74 Key Figures 77 Other Notes to the Accounts
Sampo Group EC vs. Regulatory Capital vs NAV, EUR m 1 Market risks 36% 2 Credit risks 34% 3 Operational risks 4% 4 Business risks 7% 5 Ownership risks 19%
Economic capital is defi ned by risk categories and it is formed mainly from market, credit and ownership risks. In addition, economic capital is also affected by operational risks and business risks. Market, credit and operational risks are described in more detail hereinafter.
Ownership risks are risks which are formed from the Group’s ownership in the P&C insurance company If and in small subsidiary and associated company holdings whose risks have not been separately analysed. Business risks, on the other hand, refl ect unexpected changes in the business environment.
The capital allocated to credit institution operations increased by about EUR 100 million. The capital allocated to life insurance operations increased a little less. The capital allocated to the parent company increased mainly due to the increase in value of the If holding and the effect of the Skandia investment. The announced acquisition of majority holding in If will increase the ownership risk. Analysed by risk category, the increase was focused on market risks and the capital allocated to credit risks.
The Group’s guidelines lay down uniform principles for credit risk taking, with the aim of ensuring good quality in the credit process. Sampo’s Board of Directors annually approves the credit risk policy which sets the parameters for risk appetite (expressed by economic capital) and allocation of credit risks. The targeted economic capital is set at a level below actual capital in the balance sheet. Lending is focused on customers operating in Finland. Limits are set for risk concentrations, measured by the ratio of a customer group’s nominal exposures to the Bank’s total capital as well as by the ratio of a customer group’s economic capital, calculated by a credit risk model, to the total economic capital. The risk concentration parameters are at a clearly lower level than offi cial norms.
The Group’s Credit Committee is authorised to make all credit decisions. The authority is further delegated to separate sub-committees responsible for corporate and retail
Risk Management customers, and to authorised credit offi cers in customer business units. The nominal amount of the authorisation varies according to the creditworthiness of customers and the quality and type of collateral. All credit requests are prepared in the customer business units. Credit decisions are primarily based on the creditworthiness of the respective customers. To reduce uncertainty related to its estimation, collateral or covenants are required.
The Group has an internal 12-stage creditworthiness rating scale, which covers more than 97 per cent of loans and other exposures to corporate and institutional customers in domestic banking and about 93 per cent of the corresponding loans and exposures in Sampo Group. The internal rating system has existed in its current form since 1997 and the defaults detected in the bank’s customer portfolio during the years 1997-2003 clearly support the default probabilities given to the rating categories. These refer to the possibility of future counterparty defaults, i.e. that a customer whose interest and loan instalments are unpaid for over 90 days, for example, will be forced into corporate or debt restructuring or bankruptcy.
The profi tability and target-setting of the operations of customer-responsible units and the pricing of the credit risk of the customer relationship is estimated using the return on risk-adjusted capital (RORAC) calculation.
Exposures to retail customers and the public sector increased by 17 per cent and 11 per cent respectively, while exposures to the fi nancial sector decreased by 6 per cent, exposures to the corporate sector remained at their previous level and exposures to institutional customers grew by 14 per cent.
Exposures to corporate customers increased in banking in the fi nal quarter. Analysed by industry, the greatest relative increases were about one fi fth in the energy and construction sectors, about 10 per cent in the real estate sector and 4 per cent in the trading sector. The greatest reductions in exposures were 31 per cent in fi nancial institutions, 10 per cent in other industry and 7 per cent in the forest industry. About 69 per cent of the banking business exposures to corporate customers are secured by category I-IV collateral.
77 per cent of the retail loan portfolio and most of the new lending was used to fi nance the purchase of dwellings. 78 per cent of lending and 85 per cent of its growth was in areas of net in-migration of population. 2 per cent of lending was in areas with signifi cant net out-migration. About 93 per cent of lending to retail customers was secured by category I-IV collateral, which are mainly dwellings and government guarantees. 7 per cent of the total was unsecured credits.
Due to recoveries, provisions for bad and doubtful debts were reduced by just under half a million euros, standing at almost the same level as in the previous year. Net provisions for corporate customers’ bad and doubtful debts were reduced by EUR 3 million compared with an increase of EUR 2 million in the previous year. New provisions totalled EUR 21 million. Net provisions for retail customers’ bad and doubtful debts were increased by EUR 2 million compared with a reduction of EUR 3 million in the previous year. New provisions totalled just under EUR 4 million.
Domestic corporate and institutional 17 22 Foreign corporate and institutional 12 16 Total corporate and institutional 29 38
Management of Market Risks Market risks arise from earnings volatility caused by changes in market values. Movements in risk factors such as interest rates, exchange rates, equity prices and their respective volatilities or the creditworthiness of investment targets affect market values.
Asset & Liability Management manages the bank’s structural interest rate risks and other asset and liability risks.
ALCO monitors the market and liquidity risks of non-trading activities – the so-called banking book – on a monthly basis. With respect to market risks, the main focus is on the effects of interest rate movements on the economic value of the banking book and on the annual net interest income of banking book. In liquidity risk monitoring, the main focus is on the so called funding gap – the difference between customer-related assets and liabilities, the maturing of assets and liabilities over time, new issues and the ratio of liquid assets to different types of illiquid liabilities. The fundamental market risk of credit institutions, taking all operations into account, is interest rate risk.
Market risks in trading are measured and limited by using a technique called Value-at-Risk (VaR). VaR fi gures are calculated, with a confi dence level of 99 per cent, for overnight risk. The volatility and correlation parameters required by the model are calculated daily on the basis of 60-banking day historical market observations. Risks are also monitored and limited by means of stress testing and exposure limits, thus ensuring that agreed levels of risk are also not exceeded in exceptional market conditions. At the end of the year the interest rate sensitivity of trading activities for a 100 bps rate rise was EUR -1.6 million.
MARKET RISKS IN TRADING OF SAMPO GROUP’S BANKING OPERATIONS FOR 2001–2003 (1% daily VaR fi gures), EUR thousands
The banking book and asset and liability activities In Sampo Group the credit institutions are Sampo Bank Group, Sampo Credit plc and the subsidiary banks in Estonia and Lithuania, which were transferred after the turn of the year to the ownership of Sampo Bank. As Sampo Credit’s operations have only residual market risk and the balance sheet is continually diminishing, the interest rate and liquidity risk related to the banking book is concentrated mainly in Sampo Bank’s euro-denominated balance sheet. The interest rate risks of foreign currency-denominated balance sheets are minor. Thus, the foreign currency -denominated net income from fi nancial operations is based mainly on credit margins. Foreign subsidiary banks use the local markets, multinational development banks and Sampo Bank in their market-based funding.
Market risks of the banking book The main market risk of the euro-denominated banking book is the interest rate risk. This is realised, when rates are falling, as a deterioration of the net interest income. Also, the value of the banking book is decreasing.
This results in a slimming in interest margins and thus decreased profi tability for customer business. The main risk is thus a situation in which Euribor rates remain at a low level for a long time.
In 2003, the hedging contracts made in previous years, when interest rates were higher, supported net interest income from fi nancial operations as rates decreased. During the year the interest rate exposure of the euro-denominated banking book was kept small. On 31 December, a hypothetical 1 percentage point interest rate rise would have improved the value of Sampo Bank’s eurodenominated non-trading position by EUR 33.8 million.
The great majority of Sampo Bank’s funding comes from liabilities to customers. This includes including demand deposits of private persons and companies and other term deposits. The balance of these customer-related liabilities was extremely stable in 2003. Sampo Bank’s liquidity structure on 31 December 2003 was as shown in the adjacent table.
Assets denominated in other currencies 738 478 33 119 40 1,408 1,904
Sampo Bank’s loans and advances to customers totalled about EUR 12.1 billion at the turn of the year. As EUR 790 million of this was temporary fi nance at the turn of the year, so other loans and advances totalled EUR 11.3 billion. When the corresponding customer-related assets of
Sampo Credit and Sampo Bank’s subsidiary Sampo Finance are added, there is a total of EUR 13.2 billion funding need to be covered by Sampo Bank. The funding gap between assets and liabilities to customers was thus about EUR 3.1 billion at the end of 2003.
Sampo Life’s Board of Directors annually approves the company’s investment policy which defi nes the target allocation of the investment portfolio, the limits by instrument, the organisation of investment activities and the authorities to make and execute decisions. In allocating assets, the structure of the company’s technical provisions and risk bearing capacity are taken into account. The structure and maturity of technical provisions as well as the surrender risk is considered in planning investments, although there is no actual matching of technical provisions and investments. The investment risks are monitored by sensitivity analysis. In this case, standard deviations by types of asset, approved by Sampo Life’s Board of Directors, are used in calculating the long-term risk of value changes in the investment portfolio. In calculating the overall risk, it is assumed that all markets calculate their standard deviations at the same time.
Sampo Life’s Board of Directors appoints an Investment Committee which is responsible for the organisation of investment activities. The Investment Committee ensures compliance with the principles specifi ed in the investment policy and reports to the Board on investment activities. The Investment Committee meets every second week.
Equity Portfolio by Area 1,110 EUR m, 3 North America 8%
Unit-linked insurance 593 11.3% Individual pension insurance 147 2.8% Individual life and capital redemption 415 7.9% Group pension insurance 31 0.6%
Interest rate risk The average remaining maturity is over 11 years in withprofi t group pension insurance, about 10 years in withprofi t individual pension insurance and just under 5 years in life insurance and capital redemption operations.
The most signifi cant risk included in technical provisions is the interest rate risk related to the guaranteed interest rate. In the majority of with-profi t policies the guaranteed interest rate used in premiums basis is 3.5 per cent.
The surrender risk included in technical provisions is the most signifi cant in with-profi t insurance. In pension insurance, surrender is possible only in exceptional cases, so that the real surrender risk in Sampo Life is in life insurance and capital redemption operations. This risk is reduced by the relatively short maturity of such agreements and the surrender penalties in the fi rst years.
Among the most signifi cant of the technical risks included in life insurance policies are protection covering death, disability and medical expenses. These risks are limited through careful risk selection, by pricing to refl ect the risks and costs, by setting upper limits for the protection granted and by reinsurance. The amount of individual risk is limited by reinsurance. The company’s Board of Directors annually determines the maximum amount of risk retained for its own account. Sampo Life has no catastrophe cover in place as of 1 January 2004, but the net loss of possible accidents are expected with an extremely high degree of probability to fall below the amount of equalisation provisions.
The claims ratio of insurance cover included in life insurance (the actual claims expenditure in relation to the claims expenditure assumed in insurance premiums) was 66 per cent in 2003 (74 per cent in 2002). In terms and conditions of both disability and medical expenses policies, the company has right to raise insurance premiums if the claims ratio deteriorates.
The assumed reinsurance included in technical provisions is mostly in a run-off status. The assumed reinsurance portfolio has mostly been profi table in recent years.
Operational risks Operational risks are defi ned as the risks of losses attributable to inadequate or defective internal processes, systems, people or external events. Operational risks also include legal and reputational risks. Following the new capital adequacy framework the operational risk events are classifi ed into seven classes: internal fraud, external fraud, defi ciencies in personnel management, defi ciencies in practices concerning customers, products or business, damage to physical assets, business disruption and system failures, and defi ciencies in execution, delivery and process management.
Preparations have been made for unexpected external events by drawing up operational contingency plans, on the basis of which key functions can be continued in event of operational failures. The Group’s units look after insurance security in accordance with the joint insurance policy.
The capital adequacy framework consists of three complementary pillars – minimum capital requirements, a supervisory review process and market discipline. The reform will result in substantial changes in all of these pillars. The linkage between them is strong. For example, the approach that banks adopt to calculate the minimum capital requirement for credit risk affects both disclosure requirements and the standards for risk management processes within supervisory review.
The effects of the new capital adequacy framework on Sampo’s capital adequacy requirements will be relatively minor, if the present proposal is implemented. If Sampo employs the Standard Approach in all risk areas its capital requirement will rise by about 12 per cent. The use of Foundation Internal Rating Based approach for credit risks will decrease Sampo’s requirement for capital by about 5 per cent.
The annual accounts of the insurance companies of the Group have been prepared in accordance with the provisions of Chapter 10 of the Insurance Companies Act, the Decree of the Ministry of Social Affairs and Health on the annual and consolidated accounts of insurance companies, and the instructions and regulations of the Ministry of Social Affairs and Health and the Insurance Supervision Authority.
Companies which have no material impact on the performance, fi nancial position and distributable capital and reserves of the Group have been excluded from consolidation. Such companies are Sampo’s subsidiary and associated undertakings with a balance sheet total under EUR 10 million, as well as the 20-50 per cent owned housing and property companies of Sampo Life and mutual insurance companies, where the owner of guarantee capital is entitled only to the guarantee capital and the interest paid on it.
Subsidiaries acquired during the fi nancial year have been consolidated as from the date of acquisition, and subsidiaries sold until the date of disposal.
Principles of consolidation The consolidated accounts are prepared by consolidating the profi t and loss accounts, balance sheets and notes of the parent company and the subsidiary undertakings. The consolidated profi t and loss account is drawn up by line of business, including the account of the banking and investment services, the technical and non-technical accounts of the life insurance business and the account of the holding company business, as well as extraordinary items, income taxes and minority interests combined for all businesses. Correspondingly, in the consolidated balance sheet, the assets and liabilities of the businesses are presented by line of business.
Minority interests in the profi ts for the fi nancial year and capital and reserves of subsidiary companies are presented as a separate item in the profi t and loss account and in the balance sheet.
Details of the Group’s associated undertakings are given in note 94.
The exchange rate differences relating to underwriting business have been derived from the differences in fi gures calculated according to the fl oating and fi xed exchange rates of the foreign reinsurance business. The differences have been calculated from premiums and claims, including changes in the provisions for unearned premiums and outstanding claims, the reinsurance commissions earned and interest on deposit. Exchange rate differences from underwriting business are included in “Investment income” or “Investment charges”.
If the probable value of a loan or advance is estimated at lower than the book value, the loan or advance has been stated in the balance sheet at this estimated value and the difference is included in the profi t and loss account under the item “Provisions for bad and doubtful debts”.The items “Other assets”, “Prepayments and accrued income”, “Other liabilities” and “Accruals and deferred income” in the balance sheet have been stated at their nominal value.
Lease assets are stated in the balance sheet at cost less depreciation according to plan. The depreciation is stated at the amount of capital recovered from the lease payments.
In the profi t and loss accounts of individual Group companies, “Net income from leasing activities” includes additional depreciation and profi ts and losses on the disposal of lease assets, fees and commissions, and other income and expenses relating to leasing activities.
Securities held for trading purposes consist of treasury bills and other eligible bills, other debt securities and equity shares which are included in the trading book, and other securities which are held for trading. Securities included in the trading book have been stated at market value, and other securities held for trading purposes at the lower of cost and market value.
The market value of listed securities is regarded as the last transaction price on the balance sheet date. The market value of unlisted debt securities is estimated as the net present value of future cash fl ows discounted at the current market rate, and that of equity shares as the acquisition cost or the lower probable market value. The unrealised profi ts and losses arising from valuation of the securities held for trading purposes are included in “Net income from transactions in securities”.
Properties are stated at cost, less depreciation according to plan. The cost includes the direct expenses of purchase and improvements in properties.
The shares and participations in property companies are stated at cost, less any permanent diminution in value in the balance sheet.
If there have been permanent diminutions in the values of tangible and intangible assets on the balance sheet date, the amounts have been charged to the profi t and loss account.
Shares in property companies are stated at the lower of acquisition cost and current value. Buildings and their components are stated at cost less depreciation according to plan or at current value, whichever is lower. The cost includes the direct expenses of purchase and improvements in properties.
The write-downs of the values of properties and property companies that can be characterised as fi xed assets are based on the permanency and materiality of the diminution. Revaluations have been made in the book values of certain properties and property companies.
Current values of properties and property companies Properties and property companies are classifi ed as those occupied for the Group’s own activities and those for other activities. If only a part is occupied for the Group’s activities, the classifi cation is made in relation to the square metres occupied.
Current values (fair values) are reviewed quarterly. The reviews have been carried out by internal or external experts. Every item is reviewed individually. The values of properties occupied for the Group’s own activities are assessed on the basis of rents which can potentially be received and the prevailing return requirements, considering the particular characteristics of a property. The assessment of the values of properties occupied for other than the Group’s own activities is based on the net rental income received or that can potentially be received as well as the prevailing return requirements. In assessing the values of properties, features such as their location, use, particular characteristics and potential increase in value have been taken into account. In addition, statistical data and property market forecasts have been used.
Shares and participations that can be characterised as investments are stated at the lower of cost and current value. Shares and participations that can be characterised as fi xed assets are stated at the lower of cost and current value, less any permanent diminution in value. Debt securities include bonds and money-market instruments. They are primarily stated at cost. The premium or discount at which securities have been purchased, is amortised over the period to maturity, adjusting the cost of the security and interest income.
Revaluations and adjustments to them made on investments that can be characterised as investment assets and investments covering unit-linked insurance are included in the profi t and loss account and shown as a separate item under the items “Revaluations on investments” and “Revaluation adjustments on investments”.
Revaluations and reversals of them made on investments that can be characterised as fi xed assets are included in the revaluation reserve under “Undistributable capital and reserves”. If the current value increases, write-downs made before are written back, but only to the amount of the initial cost of the item.
The zillmerisation of individual life and pension insurance and capital redemption policies, which has been deducted from the premium reserve, has been planned in such a manner that the future expense loading will be suffi cient to cover related amortisations and future operating expenses. The amortisation period of zillmerisation is no longer than the insurance period. However, in a Finnish life insurance company it is no longer than six years.
Principle of fairness in life insurance According to Chapter 13, Section 3 of the Insurance Companies ’ Act, the Principle of Fairness must be observed in life insurance with respect to policies which, according to the insurance contract, entitle their holders to bonuses and rebates granted on the basis of any surplus yielded by the policies. If the solvency requirements do not prevent it, a reasonable part of the surplus has to be returned to these policies as bonuses.
The aim is to maintain the company’s solvency status on such a level that it does not limit the giving of bonuses to the policyholders nor the distribution of profi t to shareholders.
The Board of Directors of Sampo Life has made a decision on the interpretation of the Principle of Fairness in life insurance, and thus of the share of the valuation differences of the company’s investments allocated to the owners. From the start of 2002, an interpretation of the Principle of Fairness has been in use, according to which the share of the owners in the valuation differences of investments is a constant 25 per cent. This computational distribution of valuation differences does not entitle individual shareholders or policyholders to claim these valuation differences.
Depreciation and amortisation The depreciation plan is made on a uniform basis within the Group. Assets are amortised or depreciated on a straightline basis according to plan over their estimated useful economic lives, as follows: Intangible rights 4–10 years Goodwill 5–10 years Goodwill arising from consolidation and negative consolidation difference 3–20 years Other long-term expenditure 3–10 years Residential and business premises and offi ces 20–60 years Industrial premises and warehouses 30–60 years Components of buildings 10–15 years IT equipment and cars 3–5 years Other equipment 5–10 years
In the life insurance business, the revaluations made and recognised as income with respect to buildings that can be characterised as investments are depreciated according to plan over the average useful economic lives of those buildings.
Provisions for bad and doubtful debts consist of specifi c provisions made for loans and advances to credit institutions and customers, and for contingent liabilities and commitments and amounts written off these items. The amount also includes the unrealised losses arising from valuation of the assets acquired in settlement of unpaid loans, and the losses on the sale of such assets. In addition, in the Group accounts, the additional depreciation on lease assets is included in “Provisions for bad and doubtful debts”.
A specifi c provision can be made against an individual loan or against a certain group of loans pooled by customer or by country. A provision against a group of loans pooled by customer will be made, if impaired loans are judged to be present in the loan portfolio but have not yet been identifi ed individually. A specifi c provision is made when it is considered that recovery is doubtful and the estimated sales value of the asset pledged as collateral security does not cover the principal of the loan. The loans classifi ed as bad debts are written off when the authorities have confi rmed the insolvency of a customer. In assessing the amount of a provision, the assets pledged as collateral have been valued at their fair values.
Loans are regarded as non-performing if either the principal or the interest on a loan become overdue by 90 days. Loans to companies declared bankrupt are classifi ed as non-performing on the date that the bankruptcy is declared. Bank guarantees are treated as non-performing when the bank has made a payment on the basis of a guarantee. Unpaid interest on loans recorded as non-performing is not accrued, except for loans to public sector customers or loans which are secured by a public body. With respect to leased assets, the cost less depreciation according to plan is recognised as non-performing when a payment becomes overdue by 90 days.
Life insurance business In the life insurance business, the organisation’s own operating expenses, amortisations on capitalised IT systems and depreciation on equipment are included in the profi t and loss account allocated to activities. Part of them are allocated directly, part on the basis of an annual study on working hours. Accordingly, the percentage share of activities varies from year to year. Expenses by activity are presented under “Operating expenses” (policy acquisition costs, policy management expenses, and administrative expenses), under “Claims paid” (claims settlement expenses) and under “Investment charges” (management expenses arising from property investments and other investments).
Pension schemes For those employed by the Finnish Group companies, statutory pension cover has been arranged through the Employees ’ Pensions Act, TEL. In some Group companies there is additional pension cover arranged through insurance companies. In foreign subsidiaries, pension schemes have been arranged in accordance with local practice. Pension costs are included in the profi t and loss account on an accrual basis.
Taxes and appropriations Income taxes Taxes on ordinary activities and on extraordinary items are shown separately in note 22.
Deferred taxes Deferred tax liabilities and assets arise from timing differ-
ences between different accounting and taxation periods of individual Group undertakings. In calculating them, following the primary principles of IAS 12, other differences than those impacting on the profi t and loss account have also been taken into consideration more comprehensively than is required by the Accounting Act. The deferred tax is calculated on the basis of the tax rate prevailing in each country. In Finland it is 29 per cent.
In the Group accounts the untaxed reserves and the depreciation difference are shown in the balance sheet under “Deferred tax liability” and “Capital and reserves” and, correspondingly, the changes in them are shown in the profi t and loss account under “Changes in deferred tax” and “Profi t for the fi nancial year”.
Off-balance sheet items consist of contingent liabilities and commitments. Contingent liabilities comprise transactions in which companies have underwritten the obligations of third parties, including guarantees and assets pledged as collateral security. Commitments consist of irrevocable commitments such as sale and option-to-resell transactions, underwriting commitments, undrawn formal standby facilities, credit lines and other commitments to lend.
Derivative contracts made for trading purposes are marked to market and the resultant profi ts and losses are included in “Net income from transactions in securities and foreign exchange dealing”.
The negative valuation difference between the current value and the higher book value/contract rate of a non-hedging derivative instrument is recognised as an expense. The positive valuation difference is taken into account only in calculating the solvency margin. In addition, the maximum loss arising from the non-hedging derivatives, calculated with the ValueAt -Risk method, is deducted from the solvency margin.
If a loss arising from valuation of a hedged balance sheet item is recognised as expense in the profi t and loss account, a corresponding amount, at the maximum, is recognised as an income from the hedging derivative. On the other hand, if a profi t arising from valuation of a hedged balance sheet item is recognised as an income, the loss arising from valuation of the hedging derivative is recognised entirely as an expense. The valuation differences not recognised in the profi t and loss account are taken into account at their full amount in calculating the solvency margin.
+ interest income + leasing income + dividend income + fees and commissions receivable + net income from transactions in securities and foreign exchange dealing + other operating income
+ premiums written before reinsurers’ share + investment income and revaluations and revaluation adjustments + other income
Calculation Methods for the Key Figures The key fi gures relating to banking and investment services and to the holding company have been calculated in accordance with regulation 20/420/98 issued by the Finnish Financial Supervision Authority.
The key fi gures relating to life insurance have been calculated in accordance with the decree issued by the Ministry of Finance and with supplementary instructions issued by the Ministry of Social Affairs and Health on 23 September 2002.
Profi t before extraordinary items and tax + banking and investment services operating profi t + life insurance operating profi t + holding company operating profi t ± change in the life insurance equalisation provision ± life insurance bonuses and rebates
Return on equity (at current values), % + profi t before extraordinary items and tax ± revaluation entered into / withdrawn from revaluation reserve ± change in valuation differences on investments *) - tax (incl. change in deferred tax relating to valuation differences on investments)
+ balance sheet total - technical provisions relating to unit-linked insurance ± valuation differences on investments *) (average of values on 1 Jan. and 31 Dec.)
Average number of staff Average of month-end fi gures, adjusted for part-time staff
+ net income from fi nancial operations + dividend income + fees and commissions receivable + net income from transactions in securities and foreign exchange dealing + other operating income
Expense ratio + operating expenses before change in deferred acquisition costs + claims settlement expenses load income
Solvency margin + capital and reserves after proposed profi t distribution ± valuation differences on investments - intangible assets ± deferred tax ± other required items (Ministry of Finance decree)
Effective dividend yield, % dividend per share adjusted closing share price at 31 Dec.
Relative share trading volume, % number of shares traded through the Helsinki Exchanges adjusted average number of shares *) In calculating the returns on equity and assets and net asset value per share, the valuation differences have been adjusted for the “other required items (Ministry of Finance decree)” component of the solvency margin, which includes derivative contracts pertaining to the life insurance operations.
Key Figures Sampo Sampo Sampo Sampo Sampo- Sampo Group Group Group Group Leonia Group
Profi t before extraordinary items and tax EURm 477 534 1,075 1,183 499 308
Profi t before appropriations and tax EURm 477 545 1,078 1,175 512 308
Premiums written before reinsurers’ share EURm 528 613 755 769 686 541
Options diluted earnings per share ***) EUR 0.64 0.62 1.49 1.78
Net asset value per share, no deferred tax liability deduction 12.69
Counter-value of shares at 31 Dec. (Appr.) EUR 0.17 0.17 0.17 0.17 - 0.17
Adjusted average number of shares 1,000 552,659 554,530 554,388 521,335 - 302,800
Number of shares at 31 Dec. 1,000 552,720 552,653 554,423 518,800 - 302,800
Adjusted average number of shares 1,000 1,200 1,200 1,200 1,200 - 1,200
Number of shares at 31 Dec. 1,000 1,200 1,200 1,200 1,200 - 1,200
****) The Board of Director’s proposal to the Annual General Meeting for the accounting period 2003. The dividend for 2002 was EUR 0.35.
In calculating the key fi gures the tax corresponding to the results for the accounting period has been taken into account. In calculating the net asset value per share, return on equity and equity/assets ratio as per 31 Dec. 2003, the deferred tax liability of 29%, which is estimated to be realised during the next three years, has been deducted from the holding company’s valuation differences. A deferred tax liability of 18.6% has been deducted from the valuation differences of P&C insurance in the reference periods.
The net asset value per share has furthermore been presented per 29%, i.e. less full deferred tax in all reference periods. In calculating the net asset value per share and the return on equity, an interpretation of the Principle of Fairness in life insurance has been taken into account. At the beginning of 2002 a new calculation method for the principle of fairness was taken into use, according to which the owners’ share of the valuation differences is a standard 25%. As the valuation differences of life insurance are not included in the Balance Sheet, their deferred tax and the change in deferred tax are not entered in the Profi t and Loss Account or in the Balance Sheet. Other items of the solvency margin, including derivative contracts, have been deducted from/added to the valuation differences when calculating the key fi gures. The capital and reserves of life insurance, including a share of untaxed reserves and accumulated depreciation in excess of / less than plan, is considered to belong entirely to the owners.
Life insurance assets 39 Changes in intangible and tangible assets 40 Fair value and valuation difference on investments 41 Changes in investments in land and buildings 42 Shares and participations in other than subsidiaries and associated companies 43 Investments in Group undertakings and associated undertakings 44 Other loans by security 45 Investments covering unit-linked insurances 46 Derivative contracts shown on the balance sheet
Capital and reserves 58 Movements in consolidated capital and reserves and distributable profi t 59 Preferred capital notes 60 Movements in parent company capital and reserves and distributable profi t Banking and investment services liabilities 61 Unamortised discounts and premiums on liabilities 62 Debt securities in issue 63 Other liabilities 64 Accruals and deferred income 65 Subordinated liabilities 66 Maturity analysis of assets and liabilities, by remaining maturity 67 Assets and liabilities denominated in domestic and foreign currencies 68 Deferred tax 69 Assets pledged as collateral security and secured liabilities as well as other assets pledged on behalf of the company and other Group undertakings 70 Pension liability 71 Rental commitments 72 Off-balance sheet items 73 Derivative contracts 74 Asset management services
Rental and dividend income from properties and property companies 1 2
Profi t on disposal of properties and property companies 0 5
Guarantees and other contingent liabilities and commitments 0 1 1 1
Recoveries of loans and guarantees written off in previous years -14 -16
Impact on the technical result of bonuses and rebates attached to life and pension insurance policies reserved during the year 0 36 9 Total operating expenses by activity Claims settlement expenses (claims paid) 1 3
Life Insurance Business 11 Emoluments of members of administrative and supervisory bodies Managing Directors and Deputy Managing Directors 0.6 0.6
Members and deputy members of the Supervisory Board 0.0 12 Average staff numbers By class of business
Interest and other expenses on liabilities to other than Group undertakings -4 -1
Net investment income before revaluations and revaluation adjustments and value adjustments and value readjustments 1 2
Parent Parent Group Group Company Company 15 Interest receivable and payable Interest receivable
Debt securities in issue 8 12 8 12 16 Net income from transactions in securities Debt securities and interest rate derivatives 0 2 0 2
Equities and equity derivatives 4 -5 4 -5 17 Other operating income and expenses Other operating income
Loss on disposal of properties and property companies 6 15 6 2
Loans and advances to customers - - 0 - - - 0 -
Recoveries of loans and guarantees written off in previous years - - - - - - - -
Charge to profi t and loss account - - 0 - - - 0 -
23 Segmental information of the group by class of business Banking and investment services 756 4,471 814 4,747 *) See notes 6 and 20 **) Average ***) Revenue 24 Elimination items in consolidated profi t and loss account Banking and investment services account
Certifi cates of deposit issued by other banks 479 375 26 Loans and advances to central banks included in loans and advances to credit institutions Loans and advances to credit institutions 479 944 of which to central banks - 27 Loans and advances to customers Loans and advances to customers by geographical area
Bad and doubtful debt provisions based on credit rating -37 -32
Non- Other non- Non- Other non- performing interest ear- performing interest earloans ning loans Total loans ning loans Total 28 Non-performing and other non-interest earning loans 29 Assets acquired in settlement of unpaid loans and those acquired in connection with the reorganisation of a customer’s business operations Book value of assets pledged as collateral security and acquired by the bank in settlement of unpaid loans
Other shares and participations 0 2 30 Subordinated loans Loans and advances to customers 44 47
Differences between the market value and the lower book value of securities 2 1
Other bonds and notes 1,248 1,291 33 Shares and participations Book value of shares and participations, total 20 36
Land and buildings, Equipment Shares and and other Shares and participations tangible EUR m participations in property companies assets 34 Movements in shares and participations held as fi nancial fi xed assets and in tangible assets Cost at beginning of year 29 14 43
Book value at end of year 27 12 24 35 Intangible assets
Occupied for own activities *) Properties and shares in property companies occupied for other than own activities 31 December 2003
Group goodwill Other Intangible Negative group long-term EUR m rights goodwill expenditures Equipment Total 39 Changes in intangible and tangible assets GROUP
Capital employed in properties occupied for other than own activity by net income % Net income % Capital employed 1)
Remaining Remaining acquisition cost Book value Fair value acquisition cost Book value Fair value 40 Fair value and valuation difference on investments Investments in land and buildings
Shares in property companies, associated 2 2 2 2 2 3
Other shares in property companies 8 8 8 9 9 9
Holdings exceeding EUR 5 million (fair value) and holdings in listed companies exceeding fi ve per cent specifi ed.
Holding Book value Fair value No. of shares % EUR m EUR m
Duke Street Capital IV UK L.P. UK - - 10 11
Debt securities issued by and Shares in loans to Group associated EUR m undertakings undertakings 43 Investments in group undertakings and associated undertakings Acquisition cost, 1 Jan. 166 2
Original Fair value Original Fair value EUR m acquisition cost (=book value) acquisition cost (=book value)
Investments pertaining to unit-linked insurances, corresponding to technical provisions 650 603 462 370 46 Derivative contracts shown on the balance sheet Other debtors 6 4
Differences between the market value and the lower book value of securities 0 0 0 0
Land and buildings, Equipment shares and and other Shares and participations tangible EUR m participations in property companies assets 53 Movements in shares and participations held as fi nancial fi xed assets and in tangible assets Group
Business and offi ce property 115,633 91 7.1 2.9 115,633 93 7.0 2.7
Parent Parent Group Group Company Company 56 Other assets 57 Prepayments and accrued income
Capital and Reserves 59 Preferred capital notes 31 December 2003 Euro-denominated loans 10 10
EUR m 60 Movements in parent company capital and reserves 1 Jan. - 31 Dec. 2003 Share capital, 1 Jan. 94
Bonds and notes 1,888 2,066 63 Other liabilities Items in transit 324 268
Other subordinated liabilities 35 37 of which amount of perpetuals 83 100
Banking and Investment Services 66 Maturity analysis of assets and liabilities, by remaining maturity Assets
Liabilities to credit institutions and central banks 130 251 102 460
Debt securities in issue 3,649 617 3,526 773 68 Deferred tax Deferred tax liabilities
Intra-day overdraft limit of the Bank of Finland’s settlement account 800 700
The rental payments after year 2004 106 84 72 Off-balance sheet items Guarantees and assets pledged as collateral security 1,911 1,739 on behalf of Group undertakings - on behalf of associated undertakings 0 0
Undrawn loans, overdraft facilities and commitments to lend 3,463 3,079 to Group companies - to associated undertakings - 1
For hedging For hedging EUR m purposes Other purposes Other 73 Derivative contracts Interest rate contracts
Credit equivalent Risk weighted Credit equivalent Risk weighted Amount of Amount of Amount of Amount of contracts contracts contracts contracts
**) The netting is based on a blanket agreement between ISDA and The Finnish Bankers`association The comparative fi gures have been restated to refl ect the new method.
Banking and Investment Services 74 Asset management services Asset managemet services supplied
For other purposes underlying instruments 282 60 fair value - -
For other purposes underlying instruments 390 120 fair value 1 0
Commodity index underlying instruments 40 10 fair value - The currenct values of option contracts include received and paid premiums. Negative valuation differences of derivative contracts made for other than hedging purposes have been charged to the Profi t and Loss Account (fair value = 0).
Group Group Company Company 83 Maturity analysis of assets and liabilities, by remaining maturity Assets 179 105 179 105
Other Other Euro currencies Euro currencies 84 Assets and liabilities denominated in domestic and foreign currencies Group
Liabilities to credit institutions and central banks 6 - 77 -
Holding Business 86 Assets pledged as collateral security and secured liabilities as well as other assets pledged on behalf of the company and other group undertakings
Off-balance sheet items 0 1 0 1 87 Pension liabilities The basic and supplementary pensions of the staff in the domestic Group companies have been arranged through insurance in Varma Mutual Pension Insurance Company and Sampo Life Insurance Company, while those in foreign subsidiary companies have been arranged according to local practice.
88 Off-balance sheet items of which to or on behalf of Group companies - - - 89 Other liabilities and contingent liabilities Amount of joint liability pertaining to VAT group registration 1 3 2 5
Average Change Average Change 90 Staff numbers Group of which in banking and investment services 4,471 -276 4,747 -129
Parent Parent Group Group Company Company 91 Emoluments of members of administrative and supervisory bodies Members and deputy members of the Supervisory Board,
The interest on loans to members of administrative and supervisory bodies is at least as high as on the staff loans referred to in the Income and Capital Tax Act, section 67, so that the interest benefi t will not be available for taxation.
Housing Loan Bank of Finland plc 1 Helsinki Finland 100.00 - 6
MB Equity Partners Oy 1 Helsinki Finland (60,00) 40.00 - 0
Amanda Capital Plc 2 Helsinki Finland 45.41 45.41 16 37 0
MB Equity Fund Ky 2, 7 Helsinki Finland 32.52 11.63 2 8 0
Arvi Life Oy Helsinki Finland 19.90 19.90 1 0 *) 0
Other companies, total number 42 **) 8 *) Based mainly on information from year 2002.
**) If the nominal and book value of shares and participations in a company other than a Group undertaking or participating interest is less than EUR 168,000 or a smaller amount corresponding to fi ve per cent of the capital and reserves shown on the credit institution balance sheet or the Group balance sheet, only the number of such companies and the combined sum of the book values of the shares and participations owned is notifi ed.
1 Consolidated line by line. 2 Accounted for by the equity method. 3 Excluded from consolidation, balance sheet total less than EUR 10 million. 4 Excluded from the consolidation group. 5 Mutual company, excluded from consolidation. 6 Share of guarantee capital.
Mandatum Asset Management Ltd Visiting address: Bulevardi 10 A, Helsinki Postal address: P.O.Box 152, FIN-00121 HELSINKI, Finland
Mandatum Stockbrokers Ltd Visiting address: Eteläesplanadi 8, Helsinki Postal address: P.O.Box 66, FIN-00131 HELSINKI, Finland
Mandatum Private Bank Visiting address: Bulevardi 10, Helsinki Postal address: P.O.Box 152, FIN-00121 HELSINKI, Finland 3C Asset Management Ltd Visiting address: Bulevardi 10 B, Helsinki Postal address: P.O.Box 152, FIN-00121 HELSINKI
Head Offi ce If P&C Insurance Holding Ltd Visiting address: Barks väg 15, S-10350 Solna Postal address: S-10680 Stockholm, Sweden www.if.se
AS Sampo Pank (Bank) Narva mnt 11, EE-15015 Tallinn, Estonia www.sampo.ee
UAB Sampo gyvybes draudimas (Life insurance company) Geležinio Vilko g. 18a, LT-2004 Vilnius, Lithuania Telephone: +370 5 2109 390 www.sampo.lt
Sampo Towarzystwo Ubezpieczen na Zycie S.A. (Life insurance company) ul. Domaniewska 41, Orion 5th fl oor, PL-02-672 Warsaw, Poland www.sampo.pl
Design and layout: Spokesman Photographer: Petri Artturi Asikainen Photos taken at Sampo Bank, Turku – city centre branch Printing: Hansaprint, Turku
The offi cial fi nancial statements can be inspected in full at Sampo Legal Affairs, Unioninkatu 22, Helsinki, Finland and at the address Yliopistonkatu 18, Turku, Finland.
The Annual Report is published on Sampo’s Internet pages at the address /annualreport
Printed Annual Reports can be ordered at the above Internet address, by post from Sampo Communications, P.O. Box 1026, FIN-00075 SAMPO, or by calling +358 10 516 0042.