● Sampo Life, with life insurance operations in Finland and the Baltic countries, as well as life insurance and pension fund management operations in Poland.
If P&C Insurance is the leading P&C insurance company in the Nordic and Baltic countries and serves about 3.6 million customers. If ’s premiums written in 2004 totalled EUR 4. billion and its staff numbered approximately 6,800.
Sampo Bank specialises both in traditional banking products, such as housing loans, and in investment and savings. More than . million people and over 00,000 companies and institutions have banking relations with Sampo. Sampo Bank operates in Finland, Estonia, Lithuania and, most recently, Latvia where it still operates under the Māras banka name. Sampo employs approximately 4,00 people in its banking and investment services.
Group profit for the accounting period 779 354 120 Per share key figures Earnings per share, EUR 1.40 0.64 119 Net asset value per share, EUR *) 5.97 5.64 6 Dividend per share, EUR **) 0.20 1.50 –87 Volume
P&C insurance premiums written 4,136 4,285 –3 Life insurance savings 5,274 5,026 5 *) Less full deferred tax.
Bank to focus on growth The efficiency measures undertaken in banking and long-term savings have yielded better results than expected. We have succeeded in reducing costs by approximately EUR 50 million on an annual level. Despite the cost discipline, we have made notable advances in those market segments we have focused on, such as the mutual fund business and unit-linked pension insurance. The banking world has undergone extraordinary change, but we have nevertheless been successful. For this, credit is due to our entire staff.
Our banking and long-term savings businesses are now in excellent condition. Sampo Bank is among the most efficient in the Nordic countries. Now our goal is to grow on a broader front, both in Finland and outside its borders. You can read more on this subject in the separate report on banking and long-term savings.
In February 2004 Sampo bought out the other Nordic owners of If and then, in October, the Varma Mutual Pension Insurance Company as well.
Over the last four years, Sampo’s shareholders have benefited from dividends totalling EUR 2.3 billion. The lion’s share has gone to our largest shareholder, the Finnish State, which has received dividends of EUR 0.9 billion. During 2004, the State twice sold shares in Sampo totalling EUR 0.9 billion. The State’s sales will probably continue, as parliament has authorised the government to sell its total holding in Sampo.
For Sampo shareholders, the State’s share sales have been a positive move. Share liquidity has significantly increased as shares have largely been bought by international investors.
Towards growth Sampo’s businesses are now in great shape. Our aim is to increase our banking and long-term savings businesses and maintain our leading position in P&C insurance. I believe that the banking sector will undergo further restructuring. Sampo may or may not be involved. Luckily, we are in a position where we ourselves can consider the pros and cons and choose our future. I am ready to discuss all rational solutions, but, on the other hand, we have no reason to join this process on unfavourable terms.
Sampo is financially fit and streamlined. It has an extremely interesting future ahead of it, and I want to be involved in building that future.
If ’s objective is long-term customer relationships, and thus the continual improvement of customer service and relationships is vital. Great availability of services and prompt claims handling will play a key role in ensuring that customers continue to select If as their insurance company. Customised electronic solutions simplify the administration of insurance cover and also improve the availability of services for private and corporate customers.
Efficiency parallels growth as a key aspect of Sampo’s banking operations. New banking technology has no intrinsic value and is not just a competitive tool. It is the means to provide customers with convenient, costefficient services. Sampo Bank’s real competitive strengths are its expertise and good service. This is expressed in the retail customer business through its Personal Financial Plans service and in the corporate customer business through its knowledge of customers and ability to anticipate their needs.
Banking and investment services > 20% 21.5 Life insurance > 15% 27.2
Sampo Group > 17% 25.0 RoEC = Return on Economic Capital see www.sampo.com/ir for details
If becomes a subsidiary On  February, Sampo plc agreed to acquire the shareholdings of the Swedish Skandia and its subsidiary Skandia Liv and of the Norwegian Storebrand in If P&C Insurance Holding Ltd. Following the transaction, Sampo owned 89.94 per cent of If, and If became a subsidiary of Sampo. If was transferred entirely to Sampo’s ownership on 5 October, when Varma Mutual Pension Insurance Company sold its 0.06 per cent holding to Sampo.
Sampo financed the first If transaction by issuing subordinated notes to the amount of EUR 600 million to be included as tier 2 capital in solvency calculations, senior notes to the amount of EUR 300 million and EUR 550 million as a short-term syndicated bank loan that was repaid at the beginning of October. The second If transaction was financed mainly by a new EUR 200 million bank loan. At current interest levels, these financing arrangements cause interest expenses to the holding company of approximately EUR  million per quarter.
Baltic banking business to Sampo Bank Sampo plc sold its subsidiaries, AS Sampo Pank in Estonia and AB Sampo bankas in Lithuania, to Sampo Bank plc, a wholly-owned subsidiary of Sampo plc. The companies became subsidiaries of Sampo Bank on 2 January. The transaction strengthens the role of the Baltic countries as part of Sampo’s banking operations, as also does the acquisition by Sampo Bank in November of AS Māras banka from Latvia.
Sampo sold its Skandia shares On  March, Sampo Group announced that it had sold its total shareholding in the Swedish Skandia. Of the 75.5 million shares owned by the Group, 68 million were held by Sampo plc and a gain of EUR 95 million was booked on their sale.
Finnish government decreased its holding The Finnish government decreased its holding in Sampo plc twice during 2004. First, in March, the government announced that it had sold eight per cent of all of Sampo’s shares to Varma Mutual Pension Insurance Company. After the transaction, Varma held 5.6
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Baltic life insurance business to Sampo Life In May, Sampo plc sold its life insurance subsidiaries in the Baltic countries, AAS Sampo Dziviba, UAB Sampo gyvybes draudimas and AS Sampo Elukindlustus, to Sampo Life Insurance Company Limited.
Rationalisation negotiations in Primasoft On 8 November, Sampo Group’s IT services provider, Primasoft Oy, announced the initiation of rationalisation negotiations. Although the negotiations concern the entire Primasoft staff, according to TietoEnator the aim is to achieve staff reductions without resorting to redundancies.
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Mandatum had been formed in 998 as the result of a merger between Interbank Ltd (established 988) and Mandatum & Co Ltd (established 992). Mandatum had become a leading Nordic M&A advisor in the 990s and had strengthened its competence in stock brokerage by acquiring Protos Stockbrokers Ltd from the Bank of Ireland in 998.
Sampo’s business has traditions reaching right back to the 18th century. Sampo’s history is best inspected from the perspective of each business area.
In 999, the Finnish government and the owners of Sampo Insurance Company plc decided to merge Leonia and Sampo to form Finland’s first financial services group. The merger took place at the end of 2000. The co-operation with Finland Post that originated from the Post Bank days also ended in the same year.
Mandatum Bank plc was merged to the Sampo Group in February 200.
bankas. Sampo Bank announced that it expands to Latvia in 2004 when it bought the family-owned AS Māras Banka.
Norway The predecessor of Storebrand is considered as having started P&C insurance as early as 767. At that time, the king of Denmark-Norway decreed a law stating that all real estate owners had to insure their property against fire. Thus, the Norges Brannkasse was born, which is today part of If.
In 847, the Christiania Almindelige Brandforsikringsselskap was also established in Norway to insure movable property. The company was later renamed Storebrand and, in 86, it formed a subsidiary named Idun to sell life insurance.
Sweden If ’s Swedish founder, Skandia, was established in 855, concentrating initially on life insurance and fire insurance. Skandia expanded already in its founding year, opening offices in Copenhagen, Oslo, St Petersburg, Hamburg, and Rotterdam. The company was listed in 863 when the Stockholm Stock Exchange was opened.
A period of strong growth began in the early 970s when two major P&C
Sampo established the Sampo Life Insurance Company Limited (Sampo Life) in 997, merging into it Nova Life Insurance Company Limited in 998 and Leonia Life Insurance Company Limited in 2000.
Denmark In Denmark, If ’s roots reach back to the Kgl. Brand insurance company founded in 798, which was merged into Skandia in 989. If ’s market share in Denmark is five per cent.
Baltic countries If ’s history in the Baltic countries is closely related to that of Sampo, which established a subsidiary, AS Sampo Kindlustus, in Estonia in 995. In 999, Sampo acquired the country’s largest P&C insurance company, AS Eesti Kindlustus, from Hansapank. In the same year, Sampo also acquired the P&C insurance book of AS Polaris Vara, with the exception of its credit insurance stock. These companies formed the core of Sampo’s and later If ’s P&C insurance business in Estonia. If has the largest market share in Estonia, where it controls about 40 per cent of the market.
Board of Directors Board of Directors’ duties Sampo’s Board of Directors is responsible for the management of the company in compliance with the law, the regulations of the authorities, Sampo’s Articles of Association and the decisions of the Shareholders’ Meetings. The operating procedures and main duties of the Board of Directors have been defined in the Board’s Charter.
Executive Committee and other Committees Appointed by the Board The Board may appoint committees, executive committees and other permanent or fixed-term bodies for duties assigned by the Board. The Board confirms the Charter of the
Executive Committee, and the guidelines and authorisations given to other bodies appointed by the Board. The Board has established Sampo Group’s Executive Committee, Nomination and Compensation Committee, Audit Committee, Risk Control Committee, Asset and Liability Committee (to monitor the Group’s balance sheet risks), Credit Committee (to monitor credit risks) and Investment Committee (to monitor investment risks). The Board has also appointed the members of these committees.
In 2004, Sampo concluded two share transactions which increased its shareholding in If P&C Holding AB (publ) to 00 per cent. As a result, four new members representing the P&C insurance business have been appointed to Sampo Group’s Executive Committee, namely Torbjörn Magnusson (as of 6 May, 2004), Ivar Martinsen, Gunnar
In 2004, the Executive Committee convened regularly, once a week, at the request of the CEO. From the beginning of 2005, the Executive Committee will convene once a month and a Group MD Committee comprising members of the Executive Committee will normally meet once a week, except when the Executive Committee convenes in its entirety. The Group MD Committee is responsible for preparing matters to be handled by the Executive Committee, and its composition is determined by the Board of Directors. The Group MD Committee comprises Björn Wahlroos, Kari Stadigh, Mika Ihamuotila, Torbjörn Magnusson and Patrick Lapveteläinen. Ilona Ervasti-Vaintola acts as the Group MD Committee’s secretary.
Committees Appointed by the Board Nomination and Compensation Committee The Nomination and Compensation Committee comprises the Chairman of the Board (who acts as the Committee ’s Chairman), the Vice Chairman of the Board and one member elected from among the members of the Board. The Nomination and Compensation Committee is entrusted to prepare proposals for Sampo’s Annual General Meeting on the composition of the Board, the compensation of Board members and the principles
on which this compensation is determined. The Board consults the largest shareholders in these matters.
Audit Committee The Board of Directors’ Audit Committee comprises at least three (3) members elected from among those Board members that are independent of the company. Also participating in the meetings of the Committee are the Auditor, the CEO, the CFO, the Group’s Chief Counsel and the Head of Internal Audit. The Audit Committee is responsible for overseeing Sampo Group’s internal audit and the actions of the auditors under the laws of Finland, the authenticity of the Group’s financial accounts and the auditors’ professional competence and independence, and for assessing compliance with laws and regulations within Sampo Group. The Audit Committee also prepares the proposal to be made to the Annual General Meeting on the election of the auditor.
The Audit Committee meets at least once every half-year. The Audit Committee comprises Jyrki Juusela (Chairman ), Tom Berglund and Christoffer Taxell. In addition, Tomi Englund, Björn Wahlroos, Peter Johansson, Ilona Ervasti-Vaintola and Pentti Mattila attend the Audit Committee’s meetings. The Audit Committee met twice in 2004.
Johansson, Patrick Lapveteläinen and Petri Viertiö. The Risk Control Committee met four times in 2004.
Compensation Compensation of the Members of the Board of Directors According to Sampo’s Articles of Association, the Annual General Meeting decides on the compensation of the members of the Board of Directors.
Members of the Board of Directors were paid a total of EUR 305,880 for their work on the Board and its committees in 2004. The members of the Board did not receive any other benefits and did not participate in Sampo’s option programmes.
With the exception of the Chief Executive Officer, the members of the Group Executive Committee are also participants in the long-term incentive systems for Sampo plc’s executive management for the years 2003 and 2004. 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 9 per share)
The criteria for payment of the performance bonus based on the incentive system for 2003 will be examined in December 2005 and in 2006 after Sampo has published its results for the first quarter. If the criteria for payment are fulfilled, the performance bonus will be paid in three instalments as follows: 30 per cent in December 2005, 35 per cent in June 2006 and 35 per cent in January 2007.
The criteria for payment of the performance bonus based on the incentive system for 2004 will be examined in December 2006 and in 2007 after Sampo has published its financial statements for 2006 in 2007. If the criteria for payment are fulfilled, the performance bonus will be paid in three instalments as follows: 30 per cent in December 2006, 35 per cent in June 2007 and 35 per cent in January 2008.
The terms of the incentive systems are available on Sampo’s web pages at www.sampo.com/ir.
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.
The CEO was paid a total of EUR ,037,347 in salaries and profit bonuses for 2004. The Deputy to the CEO was paid a total of EUR 672,467 in salaries and profit bonuses.
The auditor of the companies in the If Group is KPMG, Authorised Public Accountants. KPMG was paid fees totalling EUR ,553,570 for auditing and fees totalling EUR 443,877 for non-audit services. Fees totalling EUR ,33,632 were paid for assignments given to other auditing firms by If ’s internal audit.
The following companies in Sampo Group keep their own insider registers: Sampo plc, Sampo Bank plc, Mandatum Asset Management Ltd, Sampo Fund Management Ltd, Mandatum Stockbrokers Ltd,
* Sampo Group holds 40% of the shares of Primasoft, and 60% of the voting rights. The corresponding figures for Sampo plc are 20% and 30%.
** Sampo Bank owns the central unit of the Realty World real estate agency chain. The sales outlets are limited companies owned by independent entrepreneurs.
Chairman Olli-Pekka Kallasvuo, born 953 Executive Vice President & General Manager, Mobile Phones, Nokia Corporation
He holds 30,000 Sampo plc shares directly or through a controlled company
Vice Chairman Jyrki Juusela, born 943 Managing Director, Chairman of the Group Executive Committee of Outokumpu Oyj (until 3 December, 2004)
He was appointed member of the Board of Directors of Sampo plc on 25 May, 2000
He was appointed member of the Board of Directors of Sampo plc on 26 June, 992
He holds 9,600 Sampo plc shares directly or through a controlled company
In the back row, from the left: Olli-Pekka Kallasvuo, Björn Wahlroos, Matti Vuoria and Tom Berglund. In the front row, from the left: Jyrki Juusela, Anne Brunila, Christoffer Taxell and Georg Ehrnrooth.
Chairman of the Boards of Confederation of Finnish Industries (from  January, 2005), Finnair Plc, Åbo Akademi University Foundation and Föreningen Konstsamfundet, and member of the Boards of Nordkalk Corporation, Boliden AB, Raisio Group plc and Stockmann plc
He transferred to the Board of Directors of Sampo plc from the Supervisory Board on  January, 998
Matti Vuoria, born 95 CEO, President of Varma Mutual Pension Insurance Company
Chairman of the Board of Winwind Oy, Vice Chairman of the Board of Danisco A/S (Denmark), member of the Boards of Nokian Tyres plc and The Central Chamber of Commerce of Finland, Chairman of the Board of Finnish Road Administration and Chairman of Finnish-Russian Chamber of Commerce
He was appointed member of the Board of Directors of Sampo plc on 7 April, 2004
Information as on 3 December, 2004. The CVs of members of the Board of Directors can be viewed on the Internet at www.sampo.com, see Sampo Group/Corporate Governance.
Ivar Martinsen, Gunnar Rogstad and Ricard Wennerklint were appointed members of the Group Executive Committee on 25 January, 2005.
He holds ,839,890 Sampo plc shares directly or through controlled company
Chairman of the Boards of Kaleva Mutual Insurance Company and Aspo Plc, and Vice Chairman of the Board of Alma Media Corporation
He holds 500 Sampo plc shares directly or through controlled company
Mika Ihamuotila, born 964 President, Head of Banking, Chairman of the Board of Directors, Sampo Bank plc
Chairman of the Board of The Finnish Bankers’ Association, and member of the Boards of Confederation of Finnish Industries, Elisa Corporation and HYY-Group
Member of the Boards of EQT Finland B.V. and Bravida ASA
He holds 95,485 Sampo plc shares directly or through controlled company
Ivar Martinsen, born 96 Head of Commercial Business Area, If P&C
In the back row, from the left: Björn Wahlroos, Petri Niemisvirta, Patrick Lapveteläinen, Ilkka Hallavo, Ilona Ervasti-Vaintola, Peter Johansson and Ivar Martinsen. In the front row, from the left: Ricard Wennerklint, Kari Stadigh, Maarit Näkyvä, Torbjörn Magnusson, Mika Ihamuotila and Gunnar Rogstad.
The average number of Sampo Group’s staff was ,972 in 2004, compared with 5,529 in 2003. The number of employees increased significantly when the staff of If P&C Insurance joined the Group.
The Group staff was divided as follows: banking and investment services (4,67 employees), life insurance (378 employees), P&C insurance (6,776 employees) and the holding company (65 employees).
Sampo Group is rooted deep in Nordic culture and in this region’s common traditions of responsible business management.
Extensive scope The scope of corporate responsibility extends beyond shareholders and customers, however. Sampo seeks ways of doing business that take the interests of all stakeholders into account without compromising those of the owners. A good example of this approach is the “Green Light” project, initiated by Sampo in its Finnish branches in 2004. This project has the dual aims of protecting the environment by reducing electricity consumption and paper usage, while at the same time cutting costs. It is a practical application of Sampo’s new Environmental Policy and Programme, which was adopted at the beginning of 2004. At the local level Sampo again provided, for the second year running, financial support for projects at comprehensive and upper secondary schools in Finland – this year on a home district theme. If P&C focuses its support on initiatives aiming to make society safer, like the work of the Fryshuset organisation, which addresses problems affecting young people in Stockholm, and the work of the Norwegian Fire Protection Association in seeking to reduce the number of fires and their impact.
High quality customer service not only benefits customers but also serves the company’s interests in the form of solid, long-lasting customer relationships.
Increases and decreases in share capital 2000–2004 Number of new shares
Decrease in share capital 4 May, 2000 Cancellation of shares bought back (1,520,000 A shares)
Merger consideration, A shares 31 December, 2000 Leonia shareholders, i.e. the State of Finland
On 3 December, 2004, Group companies did not own any shares in the parent company, but Satura Oy, a wholly owned subsidiary of Sampo plc, owned 23,475 of the 998 A/B/C warrants and ,030,250 of the 2000 A/B options.
Authorisations given to the Board of Directors The Annual General Meeting granted the Board of Directors authorisation, valid until 7 April, 2005, to buy back and convey Sampo’s own shares. The maximum amount of A shares that can be bought back is five 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 Stock Exchange, 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 finance 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.
Five Sampo A shares can be subscribed for with each warrant. The subscription period ends on 3 May, 2005. The subscription price is EUR 4.27 per share, and is reduced by the amount of the dividend. If the Annual General Meeting accepts the proposal by the Board of Directors concerning the distribution of dividends for 2004, the subscription price will be reduced to EUR 4.07.
As a result of the subscriptions, the share capital can increase by a maximum of 6,500,000 A shares, or by a maximum of some EUR 2.8 million, which equals approximately three per cent of the company’s share capital as at 3 December, 2004. At the end of the year under review, 774,860 of the 998 A/B/C warrants were still unexercised.
Year 2000 option programme On 29 September, 2000, an Extraordinary General Meeting of Sampo decided to offer options without consideration to the management, middle management and other key personnel of Sampo and its subsidiaries and to a wholly-owned subsidiary specified by the Board of Directors. The decision to offer these options disapplied the shareholders’ pre-emptive subscription rights.
Shareholders There were 56,39 registered shareholders on 3 December, 2004, which is an increase of 3,890 over the previous year end. .43 per cent of all shares had not been transferred to the book-entry securities system. 37.0 per cent of the share capital was under foreign ownership, amounting to 36.7 per cent of the votes. Almost all foreign shareholders have nominee-registered holdings.
During the year under review, Sampo received the following notifications of changes in holdings pursuant to Chapter 2, Section 9 of the Securities Market Act (proportion of voting rights indicated in parentheses): The Franklin Templeton Group’s total holding of Sampo shares decreased
under 5.0 (4.9) per cent on 2 April, 2004. According to the notifications received from the Finnish Government, the Government’s total holding of Sampo shares decreased to 32.3 (32.) per cent on 24 March, 2004 and decreased further to 2.3 (2.2) per cent on 7 June, 2004. At the same time, the Finnish Government also announced that it had agreed to a sale restriction ending on  December, 2004 concerning its remaining Sampo shares. According to a notification received from Varma Mutual Pension Insurance Company on 24 March, 2004, the company’s total holding of Sampo shares increased to 5.6 (5.5) per cent.
Annual General Meeting Sampo plc’s Annual General Meeting will be held on Wednesday  April, 2005 at 4:00. at the Congress Hall of Finlandia House, address Mannerheimintie 3 E, Helsinki, Finland. The reception of persons who have registered for the meeting and the distribution of voting slips will commence at 2:30.
1 Public companies 0.11% 2 Private companies 4.26% 3 Financial institutions and insurance companies 40.84% 4 Public corporations 42.12% 5 Non-profit corporations 1.76%
7 Foreign ownership, own account 0.16% 8 On joint account 1.43%
the AGM a share certificate or other proof that ownership of the shares has not been transferred to a book-entry account.
The Board proposes that a dividend of EUR 0.20 per share, corresponding to total dividends of EUR 3.2 million, be distributed to shareholders. The number of shares entitled to a dividend is 565,78,265. This figure includes 2,08,850 shares subscribed for with warrants in 2004 and whose subscriptions were approved by Sampo’s Board on 4 January, 2005.
According to the proposal, only shareholders who are registered in the shareholder register kept by Finnish Central Securities Depository Ltd on the record date for dividend payment, 4 April, 2005, are entitled to dividends. The proposed dividend payment date is 2 April, 2005.
The Church Central Fund 834,900 0.15 0.15 Gyllenberg Finlandia Fund 800,000 0.14 0.14 Nordea Fennia Fund 706,050 0.13 0.12 The Finnish National Fund for Research and Development, Sitra 671,500 0.12 0.12 Pohjola Non-Life Insurance Company Ltd 642,120 0.11 0.11 In the nominee register in total 208,777,090 37.03 36.72 Others in total 84,944,721 15.07 14.94 *) 6,947,255 A shares and 1,200,000 B shares
On waiting list 0 On joint account 8,074,440 1.43 *) Each nominee register is included in this figure as one single owner.
The Annual Report is published on Sampo’s Internet pages at the address www.sampo.com/annualreport. Printed Annual Reports can be ordered at the above Internet address, by mail from Sampo Communications, P.O. Box 026, FI-00075 SAMPO, FINLAND or by calling +358 0 56 0042.
Press and stock exchange releases, the monthly updated list of the largest shareholders and other investor information published by Sampo is available on the Internet at www.sampo.com.
Financial Statements 26 Financial Statements 27 Sampo plc – Board of Directors’ Report 36 Consolidated Profit and Loss Account 40 Consolidated Balance Sheet 47 Parent Company Profit and Loss Account 48 Parent Company Balance Sheet 50 Notes to the Accounts 50 Risk Management 64 Accounting Policies 72 Transition to IFRS reporting 74 Calculation of key figures 78 Key Figures 81 Other Notes to the Account 136 Auditors’ Report
Sampo Group’s operating profit more than doubled and was EUR ,04 million (472). Profitability was good in all business areas and RoEC for the Group rose to 25.0 per cent. Excluding one-off items, RoEC reached 8.0 per cent. Net asset value per share increased to EUR 5.97 (5.64), although Sampo plc paid a dividend of EUR .50 per share in April 2004. Earnings per share rose to EUR .40 (0.64). Earnings contain one-off items worth EUR 0.39 per share. The Sampo Board proposes to the Annual General Meeting that a dividend of EUR 0.20 per share (.50) be distributed.
Operating profit from banking and investment services rose to EUR 287 million (23). The improvement was largely derived from higher fee income, lower costs and a few one-off items. Strong growth in lending to Finnish households and Baltic customers continued.
Changes in Group structure On  February 2004, Sampo plc agreed to acquire the 5.89 per cent of If P&C Insurance Holding Ltd’s shares held by Skandia and its subsidiary Skandia Liv, and by Storebrand. The transaction was completed and If became a 89.94 per cent owned subsidiary of Sampo plc on 6 May 2004. On 5 October 2004, Sampo plc acquired the shares held by Varma Mutual Pension Insurance Company. Following these transactions, Sampo plc owns 00 per cent of If.
Sampo plc’s wholly-owned subsidiary, Sampo Credit plc, was merged into Sampo plc on 30 September 2004. The outstanding loan portfolio was sold to Sampo Bank plc in September. The merger transferred some EUR 600 million in capital to Sampo plc, which was used to repay a short-term loan of EUR 550 million. The EUR 00 million subordinated loan, issued by Sampo
Sampo Bank plc’s wholly-owned subsidiary, Sampo Finance Ltd, was merged into Sampo Bank plc on 30 September 2004.
On 8 December 2004 Sampo Bank plc’s Extraordinary General Meeting passed a resolution to distribute the remaining Sampo Life Insurance Company Limited shares it owned to Sampo plc. Consequently, Sampo plc’s holding in Sampo Life rose to 00 per cent.
The firm of authorised public accountants, Ernst & Young Oy, was elected Auditor.
CEO Torbjörn Magnusson, of If P&C Holding Ltd, was appointed to the Executive Committee of Sampo Group in May after the If transaction was closed. In January 2005 Sampo plc’s Board of Directors nominated three further members to the Group’s Executive Committee. They are Gunnar Rogstad, Head of business area Private in If P&C Insurance, and Ivar Martinsen, Head of business area Commercial in If P&C Insurance, and Ricard Wennerklint, CFO of If P&C Insurance.
In addition to nominating the new members to the Executive Committee Sampo’s Board of Directors also appointed a Group MD Committee, consisting of Björn Wahlroos, Group CEO (Chairman), Kari Stadigh, Group Deputy CEO, Torbjörn Magnusson, CEO of If, Mika Ihamuotila, President of Banking and Patrick Lapveteläinen, CIO. Ilona Ervasti-Vaintola, Chief Counsel, acts as Secretary.
Shares can be repurchased to develop the company’s capital structure, to finance acquisitions or other reorganisations or otherwise to be further conveyed or cancelled. Sampo plc did not buy back any of its own shares in the period under review.
During the year 2004, Sampo received the following disclosures under chapter 2, section 9 of the Securities Markets Act. On 2 April 2004 Franklin Templeton Group’s holding in Sampo fell below 5.0 per cent of all shares and votes. The Finnish Government ’s holding first fell below /3 of the votes and shares on 24 March 2004 and further to 2.3 per cent of all shares and 2.2 of votes on 7 June 2004. On 24 March 2004 the holding of Varma Mutual Pension Insurance Company rose to 5.6 of all shares and 5.5 of votes. In the latter disclosure the Finnish Government also informed Sampo that it had agreed to lock-up its remaining Sampo shares until  December 2004.
The B options of Sampo plc’s year 2000 option programme were accepted for trading on the main list of the Helsinki Stock Exchange from 2 January 2004, at which time they were also combined with the A options. At the same time, the options were renamed as year 2000 A/B options.
A total of ,575,050 A shares were subscribed for during the year under review with warrants from Sampo’s 998 option programme, of which the Board was able, during the year, to approve subscriptions for 9,556,200 shares. The remainder of the subscriptions was approved by the Board on 4 January 2005. Similarly, 5,000 A shares have been subscribed for with option rights from Sampo’s 2000 option programme. The new shares were accepted for trading in the Helsinki Stock Exchange as each lot is entered in the Trade Register. At the end of the year, Sampo plc’s share capital amounted to EUR 94,88,03.58, totalling 563,762,45 shares, of which ,200,000 were B shares.
The average number of employees in 2004 was ,972, compared with 5,529 in the year 2003. Of the average, 54 per cent worked in Finland, 5 per cent in Sweden, 5 per cent in Norway, 3 per cent in Denmark, 3 per cent in the Baltic countries and Poland, and less than one per cent in other countries.
Ratings During the first half of the year, Moody’s assigned a Baa first-time issuer rating to Sampo plc on 6
March 2004. In connection with the If transaction, Standard & Poor’s downgraded Sampo Bank’s counterparty credit rating from A/A– to A–/A–2 with a negative outlook on 30 April 2004. S&P also lowered the long-term counterparty credit and insurer financial strength ratings of Sweden-based If P&C Insurance Ltd and Finlandbased If P&C Insurance Co. Ltd from A– to BBB+ with a stable outlook. Moody’s upgraded If P&C’s ratings to A2 (insurance financial strength) and Baa (subordinated debt) on 6 May 2004 with a stable rating outlook.
Favourable performance in fee income and costs Operating profit from banking and investment services rose to EUR 287 million (23). The improvement was largely derived from higher fee income, lower costs and partly from a few one-off items. Net income from financial operations decreased. Operationally the biggest results improvement was recorded in the restructured private clients division and growth was strongest in the Baltic
50 million issue raised tier 2 capital, Sampo plc issued EUR 600 million in tier 2 eligible debt and gained over EUR 40 million in equity from exercised warrants. Good results also strengthened the capital adequacy.
Deductions from capital –941 –470 Total capital 2,254 1,735 Risk-weighted assets (on-balance sheet and off-balance sheet) 14,678 13,920
Interest payable –70 –65 –64 –62 –63 Net income from financial operations 99 98 99 97 100
Administrative expenses –90 –73 –76 –80 –77 Depreciation and write-down of tangible and intangible assets –9 –9 –9 –8 –13 Other operating expenses –5 –15 –11 –12 –18 Provisions for bad and doubtful debts 0 4 3 7 4 Write-offs in respect to debt securities held as financial fixed assets 0 – – – – Income from companies accounted for by the equity method 3 9 1 0 –1
Change in equalisation provision –29 –25 2 Unrealised gains and losses on investment assets – 11 –11 Profit before extraordinary items 156 93 176
Investment income and charges, revaluations and revaluation adjustments 102 73 77 159 84 Claims paid –119 –90 –90 –123 –124 Change in technical provisions before customer bonuses and change in equalisation provision –101 –45 –34 –64 –91 Net operating expenses –14 –10 –12 –12 –11 Other technical income and charges 3 – – – – Technical result before customer bonuses and change in equalisation provision 45 38 35 91 44
Life insurance profit before extraordinary items 51 40 43 80 65
Operating profit contains a few one-off items. EUR 25 million in private equity gains affected dividend income, net income from transactions in securities, and the income from companies accounted for by the equity method. Other operating income includes a EUR 23 million VAT refund. The operating profit also includes a dividend of EUR 8 million paid by Sampo Life to Sampo Bank, which is eliminated in the Group profit. The comparison period included EUR 2 million in Sampo Life’s additional dividend.
Net income from securities transactions and foreign exchange decreased by EUR 2 million, mainly because the comparison figure includes a one-off gain.
Interest payable –13 –15 –12 –3 –2 Net income from financial operations –10 –15 –9 –1 –1
Elimination items – –8 – – 0 Profit before appropriations and tax 238 193 294 241 138 Tax –54 –61 26 –61 –37 Minority interest –1 –15 –18 –2 –2 Group profit for the financial year 182 117 302 178 99
Strong growth in mutual funds and asset management Mutual fund assets grew 30 per cent in a year, assisted by new products and strong overall market growth. Funds totalled EUR 6,783 million by the end of 2004 (5,24). This figure includes about EUR .3 billion in investments by Sampo Group companies. The increase was biggest in equity and balanced funds, which resulted in Sampo Fund Management becoming the largest equity fund manager in Finland in September 2004. The recent focus on equity funds has lifted the share of mutual fund assets in equity funds to 4 per cent (36). According to the Finnish Association of Mutual Funds Report, Sampo had a 2.8 per cent (22.0) market share in December.
Sampo increased its holding in If to 89.94 percent in May 2004 and in October 2004 acquired the remaining 0.06 percent of the shares. As of  April 2004 If is consolidated as a subsidiary in Sampo Group’s accounts. For the first quarter of 2004 and for 2003, If is treated as an associated company and consequently 38.05 per cent of its profit is shown in the consolidated profit and loss account. The Group consolidated accounts have been prepared according to FGAAP. The information in this section refers to If ’s 2004 in total (SGAAP).
Operating profit improved during the fourth quarter and amounted to EUR 570 million (298) for the entire year, as a result of sharply improved earnings from insurance operations. The claims trend was better than normal, as a result of a continuing low claims frequency and very few major claims during the year. Improved risk selection also had a favourable impact on earnings. All business areas improved their earnings significantly compared with the preceding year. RoEC was 28.3 per cent.
Favourable claims and expense performance Gross premiums written decreased by 3 percent compared with 2003, mainly as a result of the divestment of the marine and energy portfolio and negative exchange-rate effects resulting from the strengthening of the Swedish krona in relation to the Norwegian krone. The Private, Commercial and Baltic business areas showed premium growth, while the reduction in risks in the industrial portfolio led to a decrease in premiums from the Industrial business area.
As a result of the favourable claims outcome and improved risk selection, the Group’s risk ratio improved by 6.5 percentage points. All of the business areas reported an improved risk ratio. The claims frequency, particularly for property claims, continued to develop favourably, especially in the Norwegian market. There were significantly fewer major claims than usual, which resulted in the cost of major claims being approximately EUR 0 million below normal.
Nominal costs amounted to EUR 907 million (006), with exchange-rate effects resulting from the strengthening of the Swedish krona in relation to the Norwegian krone accounting for EUR 6 million of the cost reduction. The cost ratio decreased additionally as a result of lower commission and consulting costs and reduced staffing and IT costs.
The equity weight (including derivative instruments) of the portfolio rose somewhat during the quarter and amounted to approximately 2 percent at the end of the year. Throughout the year, the duration for interest-bearing assets was kept below the target of 3.5 years and amounted to 0.9 years on 3 December 2004. Earnings from equities were stable during the first two quarters, deteriorated slightly during the third quarter and then improved again during the fourth quarter. Despite the short duration of interest-bearing assets, earnings from the fixed-income portfolio were relatively strong during the year.
Despite the divestment of marine and energy operations, the volume of investment assets rose to EUR 8,808 million (8,008), mainly as a result of a positive cash flow from insurance operations. Gross reserves on 3 December 2004 amounted to EUR 7,68 million (7,456) and net reserves rose to EUR 6,889 million (6,80).
The solvency ratio rose to 68.5 per cent (53.8). Solvency capital increased to EUR 2,562 million (2,0), as a result of an increase in shareholders’ funds and a reduction in deferred tax. Shareholders’ funds rose to EUR 2,274 million from EUR ,87 million at the beginning of the year, as a result of the profit reported for the year.
Operating profit for Sampo Group’s life insurance companies rose to EUR 2 million (82) for the financial year. Investment yield was 8.3 per cent at market values (9.5), largely because of the good performance of Finnish equities. Net investment income increased to EUR 4 million (387). Life insurance operations reached a RoEC of 27.2 per cent.
The market value of investment assets (excl. assets covering unit-linked liabilities) was EUR 5.5 billion (5.5) at the end of the year. Valuation differences amounted to EUR 445 million (33). Fixed income instruments constituted 57 per cent (59) of all investments, equity-linked instruments 38 per cent (35) and real estate 6 per cent (6). Due to regulatory reporting requirements the proportion of equity-linked investments includes 6 percentage points of investments in fixed income funds (6).
At the end of the financial year Finnish investments accounted for 35 per cent (47) of all investments, the rest of the euro zone for 29 per cent (25) and other foreign investments for 36 per cent (28). Finland’s share of equity-linked investments was 43 per cent, 4 per cent was elsewhere in the euro zone and 53 per cent outside the euro zone.
account (8.0). Sampo Life’s solvency capital of EUR 837 million (855) was close to four times the required minimum although the company paid a dividend of EUR 50 million in September 2004.
The total gross premium income of Sampo Group’s life insurance companies was flat at EUR 528 million (528). Direct premiums grew by 3 per cent to EUR 537 million but the premium income from reinsurance fell by EUR 5 million and was EUR 9 million negative. The development was due to the sale of part of the reinsurance portfolio. In the Baltic life insurance companies strong growth continued with premiums of EUR 2 million, which is approximately 60 per cent more than in 2003 (7.5).
Unit-linked premiums increased to EUR 285 million (22) and amounted to 53 per cent of total premiums (42). Sampo Life’s main target in the Finnish market was to increase the volume of unit-linked premiums and maintain its strong market position. Volume targets were met as premiums grew by 28 per cent to EUR 273 million. However, Increased activity by competitors resulted in a decreased market share of 25.5 per cent (28.5). Regular premiums grew to EUR 307 million (293) increasing their share of total premiums to 57 per cent (56). Sampo Life’s overall market share in Finland grew to 7.9 per cent (7.6).
Holding company The holding company’s main function is to own and control subsidiaries engaged in insurance, banking and investment services. The holding company’s figures comprise, in addition to Sampo plc, the IT-service provider Primasoft.
At the end of the financial year, Sampo plc had 83 employees (82) and Primasoft had 548 employees (586). In November Primasoft started rationalisation negotiations concerning the entire staff to improve operational efficiency. Annual cost savings of EUR 8 million will be fully reflected as of 2006.
The Group’s banking operations are estimated to maintain their good profitability with stable net financial income and steadily growing fees and commissions. Credit quality shows no signs of weakening and cost efficiency is improving further. The Group’s Baltic banks continue to post significant growth numbers. RoEC target for Banking and investment services is 20 per cent.
Expansion of the mutual fund market in Finland is expected to continue. Sampo plans to maintain its strong market position by launching new and innovative fund products including equity funds specialising in emerging markets for those looking for higher returns and capital-protected products for more risk averse investors.
Dividend income 29 27 Fees and commissions receivable 256 214 Fees and commissions payable –62 –50 Net income from transactions in securities and foreign exchange dealing from transactions in securities 2 –11 2 from foreign exchange dealing 11 10
Depreciation and write-down of tangible and intangible assets 4 –35 –33 Other operating expenses 3 –43 –54 Provisions for bad and doubtful debts 5 14 0 Income from companies accounted for by the equity method 13 2 Operating profit before elimination items 287 231
Change in gross provisions for unearned premiums 548 Reinsurers’ share –118 * Figures of P&C insurance for April to December 2004 continues >
Revaluation on investments 21 30 12 Investment charges 21 –229 –277 Revaluation adjustments on investments 21 0 0 continues >
Change in provision for outstanding claims before the change in equalisation provision –50 –35 Reinsurers’ share 5 3
Change in premium reserve before bonuses and rebates –200 –253 Reinsurers’ share 0 1
Income from companies accounted for by the equity method 2 0
Change in equalisation provision –2 0 Bonuses and rebates 6 13
Dividend income 13 10 Fees and commissions receivable 0 0 Fees and commissions payable –1 –1 Net income from transactions in securities and foreign exchange dealing from transactions in securities 23 95 4 from foreign exchange dealing –1 –1
Depreciation and write-down of tangible and intangible assets 25 –50 –17 Other operating expenses 24 –29 –31 Provisions for bad and doubtful debts 0 – Income from companies accounted for by the equity method 6 –1 Operating profit before elimination items 20 –4
Operating profit from banking and investment services 308 206 Result of P&C operations; If as associated company 27 84 Profit before extraordinary items from P&C insurance; If as subsidiary 455 – Profit before extraordinary items from life insurance 236 210 Operating profit from holding business –59 –14
Income taxes 27 –151 –125 Other direct taxes 0 0 Minority interest –36 –7
Property and shares in property companies 11 12 Other tangible assets 31 24
Prepayments and accrued income Interest and rents 97 Deferred acquisition costs 112 Other 37
Intangible rights 1 1 Other long-term expenditures 2 3 continues >
Holding business assets Loans and advances to credit institutions 58, 97, 98
Loans and advances to customers 59, 60, 97, 98 13 4
Other assets 48 32 Prepayments and accrued income 66 35 2 Deferred tax assets 99 5 4 Elimination items 111 –193 –178
Banking and investment services liabilities Liabilities to credit institutions and central banks 75, 76
Debt securities in issue 70, 71, 75, 76 Bonds and notes 2,612 1,888
Deferred tax liabilities 77 17 29 Elimination items 111 –432 –372 continues >
Derivatives 129 Arising out of direct insurance operations 166 Arising out of reinsurance operations 46 Other creditors 177 Deferred tax liabilities 86 141
Arising out of direct insurance operations 0 0 Arising out of reinsurance operations 17 10 Other debt securities 0 0 Amounts owed to credit institutions 0 –
Holding business liabilities Liabilities to credit institutions and central banks 97, 98
Accruals and deferred income 95 56 30 Subordinated liabilities 96 596 – Deferred tax liabilities 99 0 116 Elimination items 111 –31 –21
Contingent liabilities Guarantees and assets pledged as collateral security 2,428 1,911
Interest payable 22 –42 –11 Net income from financial operations –36 –9
Dividend income From Group undertakings 450 418 From associated undertakings 9 8 From other companies 8 10
Property and shares in property companies 85 156 Other tangible assets 5 6
Debt securities in issue 92, 93, 97, 98 Bonds and notes 299 –
Appropriations Accumulated depreciation in excess of / less than plan 0 1
Distributable reserves 273 788 Profit/loss brought forward 1 21 Profit for the financial year 286 295
and has established a Risk Control Committee to control the Group’s risks. The major risk-related decisions are made within the framework of the given authorities in the Investment Committee, the Credit Committee and the Asset and Liability Committee (ALCO). The Group’s overall risk exposures are reported to the Board on a monthly basis.
Business risks As Sampo Group’s result is generated mainly by customer business, all unrelated risk-taking is kept to a minimum. Every attempt is made to price products and services so as to gain a sufficient return on allocated capital.
Economic capital is defined by risk categories and it is formed mainly from market, credit and insurance risks. In addition, economic capital is affected by operational risks and business risks. Business risks reflect unexpected changes in a company’s business environment.
Notes to the Accounts 50 Risk Management 64 Accounting Policies 72 Transition to IFRS-reporting 74 Calculation of key figures 78 Key Figures 81 Other Notes to the Account
The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The Board sets the principles of risk management and provides guidance on the organisation of risk management and internal control in the business areas. The Board monitors the risk management process
1 Banking and investment services 2 Life insurance 3 P&C insurance 4 Holding company 5 Sampo Group
The Group’s Rating Committee, which is independent of the credit decision process, decides on all significant ratings. The use of the credit decision -making authority is controlled by the limits set for countries, customers, customer groups and products and by regular reporting requirements.
Assessing and monitoring the credit risks of corporate customers The credit risk management system for corporate customers has the following elements. Each significant customer has a customer account officer who is familiar with the customer’s business and monitors its development. In addition, a credit analyst who is independent of the customer business units continually analyses the customers with the biggest credit risks or largest exposures.
Credit risk monitoring is based on the continuous monitoring of both the macro-economy and individual customer business sectors, and customer creditworthiness, collateral values and covenants. The credit risks of the customer business units are reviewed systematically at least once a year, monitoring the appropriateness of credit decisions, categorising the customers and collateral, and implementing action plans created to reduce the risks of customers in the lowest rating categories. Country, customer and product limits are monitored daily. The achievement of credit policy targets is followed monthly.
Measurement of credit risks Sampo Bank utilises a statistical credit risk model to quantify its credit risks. The model estimates expected credit losses and economic capital for credit risk. The counterparty level inputs to the model are the default and transition probabilities implied by Sampo ratings and the estimated loss given default. The latter is a function of the counterparty’s exposure and collateral position, and its estimated other recoverables. In addition, the diversification of the bank’s corporate exposures affects in the amount of the loss.
Sampo Group’s exposures to customers totalled EUR 34. billion and they increased during the year by about EUR 9.2 billion, of which the P&C insurance business accounted for EUR 8.3 billion. In banking, corporate customer exposures increased by 6.6 per cent and retail customer exposures by 6 per cent. In life insurance, customer exposures decreased by 3 per cent.
In terms of geographical area, 96 per cent of exposures were in EU countries. Most of the reduction in exposures in Eastern Europe is due to the transfer of EU new member country exposures to “Other EU countries” in the statistics. Middle East exposures grew by EUR 22 million.
In banking, exposures to corporate customers form about 80 per cent of the whole Group’s corporate exposures. Corporate exposures increased by EUR .5 billion, of which banking accounted for EUR 0.5 billion and life insurance for EUR 0.3 billion, with the remainder being taken up by P&C insurance after it joined the Group. Analysed by industry, the greatest relative increases, excluding P&C insurance, were in financial institutions (50 per cent), the trading sector (28 per cent) and construction (5 per cent). The greatest reductions in exposures were in energy (27 per cent) and the forest industry
Measured by Sampo’s credit risk model, the credit risk of corporate and institutional customers of banking increased during the year by about one fifth. The growth in economic capital was due primarily to the growth in volume of exposures. The average LGD-weighted probability of default (PD) in corporate exposures at the end of the year was at about the 0.9 per cent level, having decreased by 8 basis points. The expected loss in insolvency situations increased by 0.5 percentage points and was 46 per cent of the volume of exposures. The expected credit loss of corporate exposures remained at the 0.4 per cent level of the beginning of the year. Analysed by rating categories, the relative share of exposures belonging to at least the L2–( BBB–) category increased from 75 per cent to 80 per cent. The total exposures included in the two lowest categories (L4, L4–) increased by EUR 0 million from the level of the beginning of the year. At the end of the year, these exposures totalled EUR 22 million and were secured by I–IV category collateral amounting to EUR 67 million. Loans
in default remained at the level of the beginning of the year.
78 per cent of the retail loan portfolio and most of the new lending was used to finance the purchase of dwellings. The Baltic countries accounted for a good 4 per cent of the retail loan portfolio and 5 per cent of the growth. In Finland 80 per cent of lending and 85 per cent of its growth was in areas of net in-migration of population. Just under 2 per cent of lending was in areas with significant net out-migration. About 94 per cent of lending to retail customers was secured by category I–IV collateral, which are mainly dwellings and government guarantees. 6 per cent of the total was unsecured credits.
Exposures to customers in default and provisions for bad and doubtful debts Exposures to customers in default (due to bankruptcy, corporate or debt restructuring, a forced concession/decision executed to secure receivables, or payments overdue by more than 90 days) stood as follows: Exposures to corporate and institutional customers by creditworthiness category ratings equivalent EURm % EURm %
Wholesale and retail distribution 6 9 6 9 million during the year. The decrease in non-performing loans was mainly due to the customer or guarantor making the payments that were in default.
Total exposures to retail customers in default, as shown in the above table, decreased by EUR  million and include non-performing loans of EUR 32 million. Non-performing loans decreased by EUR  million.
New provisions for bad and doubtful debts totalled EUR 9 million, while recoveries and cancellations totalled EUR 33 million; i.e. net provisions for bad and doubtful debts were reduced by EUR 4 million while in the previous year the amount of new credit losses was equal to recoveries.
Size of exposure EURm No. of customers EURm No. of customers
Provisions for bad and doubtful debt Domestic retail 0 1 Foreign retail 1 1 Total retail customers 1 2
Domestic corporate and institutional –16 –8 Foreign corporate and institutional 1 5 Total corporate and institutional –15 –3
Asset & Liability Management manages the bank’s structural interest rate risks and other asset and liability risks of non-trading activities, i.e. the “banking book”. ALCO monitors the market and liquidity risks of the banking book on a monthly basis. With respect to market risks, the main focus is on the effects of interest rate movements on
Sampo Pank from Sampo plc early in the year and the Latvian Māras banka from its founders later in the autumn.
After these arrangements, Sampo Group’s credit institution activities are concentrated in Sampo Bank Group. Sampo Bank Group’s total assets at the end of the year were EUR 9,8 billion, of which the Baltic banks accounted for approximately EUR .2 billion.
Loans to customers and customer deposits comprise the core of Sampo Bank Group’s banking book. Profit is made through the interest spreads between customer items and risk-taking in non-core business is kept at a minimum. For risk management purposes, the banking book also includes wholesale funding items, investments in money market and fixed income instruments and hedging derivatives, all of which are used to modify the liquidity and the interest rate risk exposures of the banking book and capital adequacy in general.
Market risks of the banking book Nowadays, Sampo Bank’s operations are mostly euro-denominated, apart from a number of old currency -denominated loans. As the Baltic currencies are tied to the euro, Sampo Bank Group’s banking book will become almost exclusively eurodenominated in the coming years.
The interest rate risks of the banking book of subsidiaries outside Finland are kept at a minimum, and the interest rate risk is thus concentrated on Sampo Bank’s euro-denominated banking book. In Finland, loans to customers are mostly linked to Euribor rates. The interest rates of a majority of retail demand deposits are determined by the banks based on the competitive situation and general interest levels. When low rates prevail, the interests paid on deposits change less than the interests received on loans as market rates decrease, and the net interest rate margin will then shrink rather quickly. Correspondingly, as rates climb, the net interest rate margin expands at an accelerating pace. The main risk is thus a situation in which Euribor rates remain at a low level for a long time.
In 2004, the hedging contracts made in previous years, when interest rates were higher, supported net interest income from financial operations as rates decreased. The interest rate exposure of the banking book was modified in 2004 mainly by short-term instruments. During the year the interest rate exposure of the euro-denominated banking book has basically remained unchanged. As per 3 December 2004, a hypothetical  percentage point interest rate rise would have improved the value of Sampo Bank’s euro-denominated annual interest rate margin by EUR 42 million. The combined interest rate risk for other currencies was less than EUR  million.
Portfolio effect –47 –65 –59 –393 –351 –285 –3 –7 –7
Sampo Bank Group balance sheet 31.12.2004, EURm Cash/loans and advances to credit institutions 1,343 6.8% Liabilities to credit institutions and central banks 557 2.8% Debt securities 390 2.0% Certificates and deposits 3,289 16.6% Treasury bills and other eligible bills 1,684 8.5% Debt securities 2,612 13.2% Loans and advances to customers 14,856 75.1% Liabilities to customers 10,457 52.9% Lease assets 582 2.9% Subordinated debt 481 2.4% Shares and participations 47 0.2% Minority interest 15 0.1% Tangible assets 40 0.2% Capital and reserves 1,199 6.1% Other assets 834 4.2% Other liabilities 1,166 5.9% Total 19,775 Total 19,775
Underwriting risk In the P&C insurance business, an underwriting risk refers to the uncertainties involved in insuring and pricing a risk.
Thanks to its size and geographical diversity, the If Group, which is responsible for P&C insurance in Sampo Group, can independently carry relatively large individual risks.
– reinsurance to cover the group exposure to large claims settlements
Due to its size and good solvency, the If Group can carry a large share of the insurance risk itself. Non-proportional reinsurance is purchased for those risks that exceed amounts that If cannot, or does not wish to, assume liability for
In order to limit the credit risks of reinsurance, If ’s reinsurance policy stipulates the reinsurance companies that may be commissioned and the requirements set for solvency and credit rating. In an effort to diversify credit risks, If has also established clear guidelines regarding how large the total exposure may be vis-à-vis a single reinsurer.
If only reinsures with companies with a Standard & Poor’s rating of at least A- and/or at least B+ from A.M.Best. The table below shows the distribution of premiums by rating category for reinsurers.
If has set limits on how large the total exposure of a single reinsurer may be in relation to annual premiums and capital and reserves.
Provision risk The purpose of the premium reserve is to cover claims and operating costs during the remaining term of insurance contracts. The purpose of the claims reserve is to cover remaining costs for claims that have already arisen.
Role of the actuaries The chief actuary of P&C insurance is responsible for developing and presenting guidelines concerning how technical provisions are to be calculated and for assessing whether the overall level of provisions is sufficient in relation to the policy established by the Board of If. On the other hand, the actuaries in the business areas are responsible for establishing the provisions of their respective business areas and reporting to the chief actuary. The actuaries are also responsible for developing and maintaining systems for collecting the information required for calculating provisions.
The time horizon of the analyses is  or 2 years ahead, and they are complemented by short-term stress tests. The stress tests measure the effects of short-term, volatile, negative trends in the capital markets. The accompanying table shows a sensitivity analysis of the P&C insurance business.
P&C technical income and cost of operations by currency (net of reinsurance) December 31, 2004
Sensitivity analysis December 31, 2004 Effects on pretax profit of P&C insurance EURm 1% change in Private’s combined ratio +/– 19 1% change in Commercial’s combined ratio +/– 12 1% change in Industrial’s combined ratio +/– 5 1% change in premium level +/– 37 1% change in provisions +/– 54 1% change in market interest rates +/– 80 10% change in value of equity portfolio +/– 103 Effects on shareholders’ equity of P&C insurance after taxes EURm 1% change in market interest rates +/– 57 10% change in value of equity portfolio +/– 74 10% change in exchange rate for EUR +/– 45 10% change in exchange rate for NOK +/– 47 10% change in exchange rate for USD +/– 3 managed using similar principles to those applied in Sampo Life.
In the table on the following page, the remaining insurance period (maturity) is evaluated assuming lapse rates based on the past experience.
Technical risks of insurance With respect to Sampo Life, the technical risks of insurance refer to risks related to mortality rate and the incidence of disability and illness.
The ratio of the actual claims expenditure of life insurance cover to the claims expenditure assumed in insurance premiums was 72 per cent in 2004 (73 per cent in 2003). In both disability and medical expenses policies, the company has the right to raise insurance premiums if the claims experience deteriorates.
The most noteworthy of the technical risks related to pension insurance is the increase in life expectancy. In group pension insurance, the assumed life expectancy and technical provisions were raised in 2002. The increase in life expectancy also raised future premiums.
The assumed reinsurance portfolio was reduced due to its partial sale. There is no intention to increase the assumed life reinsurance portfolio in the future.
Investment risks of the insurance business The investment operations of Sampo Group’s insurance companies aim at achieving the highest possible returns at acceptable levels of risk, to ensure that both Sampo Life and the If Group will, under all circumstances, exceed the required solvency ratio and have sufficient and structurally suitable investment assets to cover the compa-
Reserve for decreased discount rate (individual policies) 114 0 0 0 0 0 8 122 2.2 8.7
3 Western Europe 11% 4 East Europe 3% 5 North America 19%
The Boards of Directors of the Group’s insurance companies annually approve the companies’ investment policies which define 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 and setting return and liquidity requirements, the structure and requirements of the companies’ technical provisions and their risk bearing capacities are taken into account. There is no actual matching of technical provisions and investments. The investment risks are monitored by
4 Raw material indices 1% 5 Real estate 6% 6 Private equity 6% 7 Hedge funds 3%
Sampo’s Board of Directors and each insurance company’s Board of Directors appoint an Investment Committee, which is responsible for the organisation and control of investment activities. The Investment Committee ensures compliance with the principles and limits specified in the investment policy and reports to the company’s Board on investment activities. Sampo Life’s Investment Committee meets every second week and the If Group’s Investment Committee meets at least eight times a year.
The Boards of Directors of all companies annually approve the risk management plan concerning the risks of the entire insurance company.
Fixed income investments, Sampo Life and If Group, 31.12.2004 Market value , EURm
The business areas are responsible for organising and monitoring the management of operational risks in accordance with the principles defined by Group management. The centralised functions (security, information management, legal affairs, staff ) support the business units in their own expert areas. The Group’s risk management organisation develops methods to manage operational risks, co-ordinates the operations of the business units and companies and is responsible for the risk reporting of management. Internal auditing monitors the adequacy and efficiency of internal control and risk management, while the Compliance function monitors the adherence to regulations and guidelines and the validity of financial information.
A co-ordinated programme to collect information on the realisation of operational risks will start in 2005. Significant incidents are reported to the Group’s risk management, they are classified into a risk category and the event and control points are analysed. These events are also compared to the self-evaluations and risk indicator monitoring. The Group’s business units arrange their insurance cover in accordance with the joint insurance policy.
The business units report on the development of the risk indicators of risk management on a monthly basis, and on the actual realisation of operational risk incidents immediately cases are noticed.
Reports on operational risks are submitted to the management and Board of Directors quarterly. The reports contain information on the current risk position, the actual incident data and the economic capital allocated to operational risks. In addition, the indicators are monitored in risk reports.
In calculations of economic capital, the capital required by operational risks is allocated to the business units/companies in accordance with the Basle standard method.
The Basel 2 compliance project currently underway in Sampo is responsible for Sampo Group’s full compliance with the new framework. The biggest changes affecting Sampo’s capital adequacy calculations are the new capital adequacy requirement for operational risks and the possibility to use the Internal Ratings Based Approach for calculating credit risks. Sampo has already used the Internal Ratings Based Approach for corporate customers for many years and, with respect to retail customers, for some years. During 2004 these internal models were further developed to correspond even better with the requirements of the capital adequacy calculations. In addition, the main databanks and risk evaluation methods required in the reform have been developed.
The effects of the new capital adequacy framework on Sampo’s capital adequacy requirements in using the so-called standard model will be relatively minor, if the present proposal is implemented. The use of the Internal Ratings Based Approach in capital adequacy calculations will decrease Sampo’s requirement for capital significantly.
Sampo Group engages in banking and investment services, P&C and life insurance businesses, and holding company business.
The annual and consolidated accounts of the parent company and the banking and investment services companies of the Group have been drawn up in accordance with the provisions of Chapter 4 of the Act on Credit Institutions, the Decree of the Ministry of Finance on the annual and consolidated accounts of credit institutions and investment services companies, and the regulations of the Financial Supervision Authority.
The Group accounts include the accounts of Sampo plc and all its domestic and foreign subsidiary and associated undertakings, either directly or indirectly owned.
Companies which have no material impact on the performance, financial 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 0 million, as well as the 20–50 per cent owned housing and property companies owned by 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 financial year have been consolidated as from the date of acquisition, while subsidiaries sold during the financial year have been consolidated until the date of disposal.
The consolidated accounts are prepared by consolidating the profit and loss accounts, balance sheets and notes of the parent company and the subsidiary undertakings. The consolidated profit and loss account is drawn up by line of business, including the accounts of banking and investment services, P&C insurance business, life insurance business and 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
Intra-Group shareholdings have been eliminated by using the acquisition method. Accordingly, the difference between the acquisition cost and capital and reserves of the subsidiary companies at the date of acquisition has been allocated to the identifiable balance sheet items and is depreciated
according to the plan applied to those items. The unidentifiable part of the difference has been treated as goodwill and capitalised as an intangible asset. It will be amortised through the profit and loss account over its expected useful economic life.
Subsidiaries in Sampo’s banking and investment services business engaged in other than banking and investment services have been dealt with by using the equity method of accounting.
If P&C Insurance The associated company, If, became a Sampo subsidiary on 6 May 2004 when Sampo acquired the shares of If Skadeförsäkring Holding AB held by the Swedish Skandia and its subsidiary Skandia Liv, and by the Norwegian Storebrand. After the transaction, Sampo’s ownership of If rose from 38.05 per cent to 89.94 per cent. Sampo plc acquired the remaining 0.06 per cent of the shares from the Varma Mutual Pension Insurance Company on 5 October 2004.
If was consolidated as a subsidiary undertaking in the consolidated accounts as from  April 2004. In the comparison period of 2003 and in the first quarter of 2004, If was treated as an associated undertaking. If is treated in the consolidated accounts at values in accordance with Swedish accounting practice, taking into account the adjustments required in the decision of the Finnish Financial Supervision Authority on 2 June 2004. According to this decision the equalisation provision and the collective guarantee item shall be included in the technical provisions complying with the Finnish accounting practise
Notes to the accounts of the P&C insurance business are presented only for the period If was consolidated as a subsidiary, from  April 2004 to 3 December 2004.
The exchange rate differences relating to underwriting business have been derived from the differences in figures calculated according to the floating and fixed 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 deposits. Exchange rate differences from underwriting business are included in “Investment income” and
Exchange rate differences arising from investments and underwriting business are broken down in note 3 “Net investment income”.
Banking and investment services and holding company business Assets and liabilities Loans and advances and liabilities are stated in the balance sheet at the value paid or received for them at the time of acquisition, adjusted for the amortisation of premiums and discounts arising on acquisition. In the profit and loss account, the amortisation of premiums and discounts is accrued as interest receivable or interest payable over the life of the contract.
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. Assets and liabilities arising from derivative contracts have been treated as shown in “Off-balance sheet items and derivative contracts”.
Agreements on the resale and repurchase of securities Securities which are sold or purchased under commitments to resell or repurchase them, or lent securities, are included in the original balance sheet item irrespective of the contract.
The premiums and discounts arising on the acquisition of debt securities, if material, have been amortised or accreted over the life of the contract and included in “Interest receivable”. The cost of the security is adjusted to reflect the amortisation or accretion of the premiums and discounts.
Securities held as financial fixed assets are stated at cost less any permanent diminution in value. The permanent diminution in value of these securities is shown separately in the profit and loss account under the heading
Insurance business Investments Investments in properties and property companies In life insurance business, 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 investments in land and buildings of the P&C insurance business are stated in the balance sheet at current value. Changes in current value are included in the profit and loss account under “Investment income” or
CURRENT VALUES OF PROPERTIES AND PROPERTY COMPANIES Properties and property companies are classified 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 classification is made in relation to the square metres occupied.
In the life insurance business, shares and participations held as fixed assets are stated at cost, or the lower current value, if the diminution in value is permanent. Revaluations and reversals of them made on investments held as fixed 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 difference between the book value and the remaining acquisition cost of investments, which is shown in the notes, consists of revaluations and accumulated changes in the net assets of the associated undertakings, having been accounted for by the equity method.
The current value of not publicly traded equity shares and debt securities is stated i.a. as the remaining acquisition cost or the estimated probable transaction price. The current value of loans, deposits with credit institutions and deposits with ceding undertakings is stated as the nominal value or the estimated lower probable value.
Intangible and tangible assets Intangible and tangible assets are stated at cost less amortisation and depreciation according to plan. Longterm expenditure includes IT systems and improvements made in flats and rented premises. Tangible assets include equipment.
Liabilities arising from insurance contracts are recognised as technical provisions, consisting of provisions for unearned premiums and outstanding claims.
The change in the technical provisions of reinsurance has been calculated at fixed rates of exchange. Therefore, the impact on results of the exchange rates in the underwriting business has been included in “Investment income” in the profit and loss account.
The interest rate used in discounting technical provisions is at most the maximum rate accepted by the authorities in each country. The interest rate used in discounting technical provisions is the same or lower than that used in premium calculation. Most of the technical provisions is discounted using an interest rate of 3.5 per cent. The highest discount rate used is 4.5 per cent.
999. The discount rate used in the calculation of technical provisions is 3.5 per cent, at the maximum, in the great majority of the technical provisions. Due to the difference in the discount rate of technical provisions and the guaranteed interest of policies commenced prior to  January 999, supplementary provisions of guaranteed interest have been added to technical provisions. The supplementary provisions for guaranteed interest were supplemented on 3 December 2004 by an amount which will give, in practise, a discount rate of 3.5 per cent for the payments already made for the agreements in question.
According to Chapter 3, 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 legislation of Estonia, Latvia, Lithuania and Poland respectively does not contain provisions corresponding to the Principle of Fairness.
Recoveries of loans and advances and other items previously written off, releases of provisions, and profits on the sale of assets acquired in settlement of unpaid loans have been deducted from “Provisions for bad and doubtful debts”.
Non-performing loans and other noninterest earning loans 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 classified 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.
Insurance business In the insurance business, the organisation ’s own operating expenses, amortisations on capitalised IT systems and depreciation on equipment are included in the profit 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).
Deferred taxes Deferred tax liabilities and assets arise from timing differences between different accounting and taxation periods of individual Group undertakings. In calculating them, following the primary principles of IAS 2, other differences than those impacting on the profit 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.
The untaxed reserves and depreciation difference included in the capital and reserves have not been included in distributable items when calculating the maximum amount of the distributable profit.
Banking and investment services and holding company business Off-balance sheet items 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 optionto -resell transactions, underwriting commitments, undrawn formal standby facilities, credit lines and other commitments to lend.
Contingent liabilities are recorded to the extent that the obligation in respect of a guarantee or an asset pledged is met on the balance sheet date. The commitments are stated at the maximum amount that can be required to be paid on the basis of the commitment.
In notes 2 and 23, “Net income from securities transactions”, the item “Net income from transactions in debt securities” also includes the profits and losses on interest rate contracts. Profits and losses on equity contracts are included in “Net income from transactions in equity shares”. Profits and losses on exchange rate contracts are included in “Net income from foreign exchange dealing”.
Losses on valuation of derivative contracts treated as hedges are recorded in the profit and loss account to the amount which is recorded as a gain on
In the P&C insurance business, equity and exchange rate derivative contracts are valued at the current value on the balance sheet date. Changes in the current value are included in the profit and loss account. An amount corresponding to the unrealised gains on the valuation of equity derivative contracts is transferred from distributable capital and reserves to undistributable capital and reserves. Interest rate derivative contracts are valued at the lower of cost and current value of the contracts on the balance sheet date.
As hedging derivatives are treated certain exchange rate contracts which are used to hedge net investments in foreign operations. The realised and unrealised gains and losses on the hedging derivatives are included directly in capital and reserves.
Sampo will adopt an accounting practice in accordance with the IFRS (International Financial Reporting Standards) for its first-quarter 2005 Interim Report. Prior to publishing the Interim Report, Sampo will release information to the stock exchange and on its Internet pages (www.sampo.com/ir) describing the effect of the transition to IFRS on the figures and the changes in key accounting policies.
The format of the consolidated financial statements will be changed with the new accounting practice and, accordingly, the former practice of presenting financial information vertically by line of business will be replaced by the segment reporting referred to in IAS 14 Segment Reporting. The Group’s segments will correspond to the current business areas: banking and investment services, P&C insurance business, life insurance business and holding company business.
According to preliminary estimates, the transition to IFRS on  January 2004 will increase Sampo’s capital and reserves by EUR 308 million. The increase will be caused mainly by the requirement under IAS 39 Financial
Instruments: Recognition and Measurement to measure all financial instruments at fair values. The change will mostly affect the Group’s life insurance business, in which these instruments have been measured, in compliance with the current practice, at the lower of cost and market value.
The preliminary changes in the shareholders ’ equity at the date of transition,  January 2004, in reconciliation from Finnish Accounting Standards (FAS) to IFRS are presented in the table on the following page:
Fair value reserves – 170 170 Distributable reserves 850 850 Preferred capital notes 10 –10 – Profit brought forward 722 148 870
As required by IAS 39, the financial instruments of the life insurance business will be measured at fair value in Sampo Group’s consolidated financial statements, while insurance contracts will be reported in the former way. The transition to the practice of measuring insurance contracts in accordance with IFRS principles will probably occur no earlier than in 2008 in the life insurance business, at which time the second stage of the project commenced by IASB (the International Accounting Standards Board) is estimated to come into force. The changes in the fair value of financial instruments in the life insurance business will, in the main, be recognised directly in capital and reserves.
Due to the uncompleted nature of tax solutions, etc., the cost model referred to in IAS 40 Investment Property will be applied to investment property in accounting for the time being.
Banking and investment services + interest income + leasing income + dividend income + fees and commissions receivable + net income from transactions in securities and foreign exchange dealing + other operating income
Holding company Calculated using the formula shown above for banking and investment services revenue
Operating profit Banking and investment services operating profit + property & casualty insurance operating profit + life insurance operating profit + holding company operating profit
Banking and investment services + interest income – interest charges + dividend income + fees and commissions receivable – fees and commissions payable + net income from transactions in securities and foreign exchange dealing + other operating income – administrative expenses – depreciation and write-downs of tangible and intangible assets – other operating expenses – provisions for bad and doubtful debts – write-offs in respect of debt securities held as financial assets ± income from companies accounted for by the equity method
+ capital and reserves (excl. preferred capital notes in banking operations)
× 00 + balance sheet total – technical provisions relating to unit-linked insurance ± valuation differences on investments *) (average of values on  Jan. and 3 Dec.)
Equity/assets ratio (at current values), % + capital and reserves (excl. preferred capital notes in banking operations) + minority interest ± valuation differences on investments after deduction of deferred tax *) × 00
+ net income from financial operations + dividend income + fees and commissions receivable + net income from transactions in securities and foreign exchange dealing + other operating income *) 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 insurance operations.
Expense ratio + operating expenses before change in deferred acquisition costs + claims settlement expenses
Solvency capital Formula shown above in connection with calculation of P&C insurance solvency capital.
Earnings per share + profit before extraordinary items and tax - tax ± minority interest adjusted average number of shares
Relative share trading volume, % number of shares traded through the Helsinki Stock Exchange
Return on equity (at fair values) % 33.3 14.0 1.5 -15.3 3.5 Return on assets (at fair values) % 4.4 3.3 0.8 -1.6 1.4
Banking and investment services Revenue EURm 1,133 1,119 1,261 1,664 1,918 Net income from financial operations EURm 394 404 448 469 426
Premiums written before reinsurers’ share EURm 528 528 613 755 769
A shares: Adjusted average number of shares 1,000 556,877 552,659 554,530 554,388 521,335 Number of shares at 31 Dec. 1,000 562,562 552,720 552,653 554,423 518,800 Adjusted number of shares at 31 Dec. 1,000 562,562 552,720 552,653 554,423 518,800 Weighted average share price EUR 8.72 6.85 8.16 10.11 8.96 Adjusted share price, high EUR 10.24 8.53 9.95 12.70 12.20 Adjusted share price, low EUR 7.20 5.05 6.02 7.70 5.87
Share trading volume during accounting period 1,000 648,086 188,014 179,173 231,389 170,689 Share trading volume during accounting period % 116.4 34.0 32.3 41.7 32.7
B shares: 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 Adjusted number of shares at 31 Dec. 1,000 1,200 1,200 1,200 1,200 1,200 *) The internal dividends and sales profits between the different lines of business have not been eliminated in the result analysis and specifications or key figures of banking and investment services and insurance business. In the Group operating profit they have been eliminated. In addition, the operating profit includes the income from If Group, accounted for by the equity method, until the first quarter of 2004. Therefore, the Group operating profit is not equal to the sum of business area operating profits.
**) The solvency ratio group per 31 December 2001 was created on 31 March 2001 as the parent company became a holding company. In order to preserve the comparability, the figure for the reference year has been calculated from the equivalent date.
***) The dilution effect for 2004 has beeen calculated as if all the remaining subscriptions rights (1,178,630/the bond loan with warrants of 1998 and 5,199,000/the option programme of 2000 at the end of December, 2004) would have been realised. One subscription right entitles to subscribe for 5 shares. In 2003, there were 3,089,870 possible subscription rights.
In calculating the key figures 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 solvency ratio, the deferred tax liability has been deducted from valuation differences. In calculating the net asset value per share and the return on equity as per 2002 and 2003, an interpretation of the principle of fairness in life insurance has been taken into account, according to which the owners’ share of the valuation differences is a standard 25%. Previously the valuation differences have not been included in the capital and reserves. As a result of a change in accounting practice in 2004, the target level for total policyholder bonuses was kept as before, but the division of valuation differences in accounting was abandoned. Accordingly, the valuation differences of investments for 2004 have been treated entirely as capital and reserves in calculating the above key figures. As valuation differences are not included in the Balance Sheet, their deferred tax and the change in deferred tax are not entered in the Profit 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 figures. If is consolidated as a subsidiary in Sampo Group’s accounts as of April 1, 2004. Accordingly If figures have been taken into account line by line in the consolitated profit and loss account and balance sheet. In the comparison periods and between January 1, 2004 and March 31, 2004 If has been treated as an associated company and its result is presented in the consolidated profit and loss account under the heading “result of P&C operations” and the investment in If under “net assets of P&C insurance business” in the consolidated balance sheet.
Liabilities to credit institutions and central banks 12 17 Liabilities to customers 116 134 Debt securities in issue 130 128 Subordinated liabilities 13 10 Preferred capital notes 7 0 Other interest payable –17 –16 2 Net income from transactions in securities Debt securities and interest rate derivatives –12 –14 Equities and equity derivatives 0 15 Other income from transactions in securities 0 0
Rental and dividend income from properties and property companies 1 1 Profit on disposal of properties and property companies 0 0 Other income 40 35
Property & Casualty Insurance Business EURm 7 Premiums written 2004 Direct insurance
Norway 968 Sweden 931 Finland 376 Denmark 172 Baltic countries & Poland 67
ITEMS DEDUCTED FROM PREMIUMS WRITTEN Credit loss on outstanding premiums 4 Premium tax 82 Fire brigade charge 1 Traffic safety charge 1 Industrial safety charge 2 Government medical treatment fees 12 Other 1 Total 104 8 P&C insurance balance on technical account by group of insurance class Columns: 1 = Premiums written before reinsurers’ share 4 = Gross operating expenses before reinsurance commissions and profit participations 2 = Gross premiums earned before reinsurers’ share 5 = Reinsurance balance 3 = Gross claims incurred before reinsurers’ share 6 = Balance on technical account before the change in collective guarantee item, other technical charges and the change in the equalisation provision
Direct insurance Statutory workers compensation 41 200 –278 –21 10 –90 Non-statutory accident and health 133 168 –169 –45 –1 –47 Motor third party liability 546 550 –508 –98 –1 –58 Motor, other classes 693 704 –425 –113 –4 162 Marine, aviation and transport 196 272 –130 –37 –123 –18 Fire and other damage to property 764 941 –433 –166 –85 257 Third party liability 101 149 –109 –30 –17 –7 Credit and suretyship 3 3 –1 –1 –1 0
Property & Casualty Insurance Business EURm 2004 9 Total operating expenses by activity Claims settlement expenses (claims paid) 177
Investment management expenses (investment charges) 8 10 Staff expenses Salaries and commissions 300 Pension expenses 64 Other social expenses 67 11 Emoluments of members of administrative and supervisory bodies Managing Directors and Deputy Managing Directors 3 Members and deputy members of the Board of Directors 6 12 Average staff numbers By class of business
Share of profit of associated undertakings 0 Dividend income 3 Other income 3
Income from other investments Dividend income 6 Interest income from Group undertakings 170
Losses on realisation of investments –51 Unrealised losses on investment –11
Impact on the technical result of bonuses and rebates attached to life and pension insurance policies reserved during the year –8 0 17 Total operating expenses by activity Claims settlement expenses (claims paid) 2 1
Policy management expenses 13 11 Administrative expenses 10 11 Commissions on reinsurance ceded and profit participations (-) –2 –2
Income from investments in Group undertakings Interest income 3 3 Other income 0 16
Share of profit of associated undertakings – 0 Interest income 0 – Other income 0 –
Dividend income 83 74 Interest income from Group undertakings 2 2 Interest income from other than Group undertakings 109 116 Other income from Group undertakings 24 6 Other income from other than Group undertakings 172 204
Value readjustments 38 99 Gains on realisation of investments 147 99
Value adjustments and depreciations Value adjustments on investments –49 –71 Planned depreciation on buildings –7 –7
Investment income and charges include Exchange rate differences of insurance business 1 2 Exchange rate differences of investments 15 26
Holding Business Group Parent Company 22 Interest receivable and payable Interest receivable
Loans and advances to credit institutions 3 1 3 1 Loans and advances to customers 0 0 0 0
Interest payable Liabilities to credit institutions and central banks 9 0 9 0
Debt securities in issue 15 8 15 8 Subordinated liabilities 20 – 20 – Other interest payable –5 0 –5 0 23 Net income from transactions in securities Debt securities and interest rate derivatives –1 0 –1 0 Equities and equity derivatives 95 4 103 4 24 Other operating income and expenses Other operating income
Rental and dividend income from properties and property companies 11 15 11 17 Profit on disposal of properties and property companies 5 3 5 3
–39 –5 28 Segmental information of the group by class of business
Investment income 0 Investment charges 3 Profit before extraordinary items 30
Interest receivable –6 –2 Interest payable 0 0 Net income from financial operations –6 –2
Fees and commissions payable 1 1 Other operating income –94 –12 Administrative expenses 19 2 Other operating expenses 1 1 Profit before extraordinary items –79 –10
Other countries 104 132 Bad and doubtful debt provisions based on credit rating –15 –37
Financial and insurance institutions 79 46 Public sector entities 304 899 Non-profit institutions 158 145
Properties and shares and participations in property companies – – Other shares and participations 0 0 35 Subordinated loans Loans and advances to customers 27 44 Debt securities 27 181
Amounts include due from Group undertakings – – due from associated undertakings – –
For trading purposes Differences between the market value and the lower book value of securities 2 2
Debt securities by type Treasury bills 53 52 Local authority bills 8 28 Commercial paper 35 12 Certificates of deposit 936 575 Convertible bonds – 3 Other bonds and notes 1,041 1,248 38 Shares and participations Book value of shares and participations, total 14 20
Held for trading purposes – – Held as financial fixed assets – –
Shares and participations in Group undertakings Other than credit institutions 2 2
Book value at end of year 33 11 31 40 Intangible assets
*) Properties and shares in property companies occupied for other than own activities 31 December 2004
Type of property Housing – – – – Business and office property 1,211 1 8.2 – Industrial property – – – – Water areas and agricultural and forest land – – – – Buildings under construction – – – – Other domestic property – – – – Foreign property – – – –
3) The unlet space% is a proportion of the unlet spaces to all spaces which can be let out. Unlet spaces are spaces which can be let out, but which yield no rental income on the balance sheet date based on a lease.
Property & Casualty Insurance Business 44 Changes in intangible and tangible assets 2004
Decrease –9 –22 –35 –66 Transfers between items 0 –1 –1
Property & Casualty Insurance Business 46 Changes in investments in land and buildings 2004
EQT Northern Europe UK 1 LP FI 2,109,481 – 23 23
Accumulated depreciation, 1 Jan. –4 –9 –5 –18 Accumulated depreciation on decreases and appropriations 2 1 3 Depreciation for the financial period 0 –1 –1 –2
Valuation difference (difference between fair value and book value) 445 331
Land and buildings and shares in property companies Loans to associated undertakings
Holding Book value Current value Name of company Country No, of shares % EURm EURm
Unit trusts New Providence Fund Ltd Bahama 49,039 – 9 9 RMF top five II Bahama 20,000 – 15 15 RMF Commodity Strategies Bahama 14,787 – 12 12 RMF Relative Value Strategies F Bahama 12,243 – 14 14 Key International Trust Fund Cayman Islands 520 – 21 21 Prosperity Cub Fund Cayman Islands 350,000 – 4 18 Russian Prosperity Fund A Cayman Islands 275,188 – 3 11 Blackrock Global High Yield Fund Ireland 1,979,490 – 196 196 JPMorgan Fleming Funds - India Fund Luxembourg 911,051 – 18 21 Nektar Hedge Fund Sweden 68,504 – 8 12 APS Japan Growth Fund Singapore 150,191 – 10 10 Trigon Central and Eastern European Fund Estonia 673,504 – 5 8
Accumulated depreciation, 1 Jan. –1 Change in Group structure Depreciation for the period
Book value, 31 Dec. 90 3 55 Other loans by security
Total of other loans 0 0 56 Investments covering unit-linked insurance 2004 2003
Holding Business Group Parent Company 58 Loans and advances to central banks included in loans and advances to credit institutions Loans and advances to credit institutions 67 67 50 55 of which to central banks – – – –
59 Loans and advances to customers Loans and advances to customers by geographical area
Financial and insurance institutions 2 2 2 2 Households – – – –
60 Subordinated loans Loans and advances to customers 4 4 4 4
Commercial paper – 99 – 99 Convertible bonds – 4 – 4 Other bonds and notes 99 17 99 17
Differences between the market value and the lower book value of securities – 0 – 0
Shares and participations in associated undertakings Other than credit institutions 21 786 * 18 317
Holding Business Properties and shares in property companies occupied for other than own activities 31 December 2004
Water areas and agricultural – 13 – – – 15 – – Buildings under construction – – – – – – – –
Property for letting under finance leases – – 7.6 – – – – –
3) The unlet space % is a proportion of the unlet space to all spaces which can be let out. Unlet spaces are spaces which can be let out, but which yield no rental income based on a lease on the balance sheet date.
Distributable reserves, 1 Jan. 850 For dividend distribution –515 Acquisitions 11
Profit brought forward 1 Jan. 722 For dividend distribution –316 Expiration of dividents for 1998 1 Exchange rate translation differences 12
Profit for the financial year 779 + Distributable reserves 335 + Profit brought forward 418 – Undistributable items 54 Distributable profit in total 1,479 68 Preferred capital notes 31 Dec. 2004
Sampo Group If P&C Insurance Ltd issued on 2001 EUR 200 million Subordinated Notes. The loan pays fixed interest rate for the first ten years and floating rate interest after that. The loan has a maturity of 20 years but it can be repaid with the consent of the Swedish FSA on 2011 on any other interest payment date after that.
If P&C Insurance Company Ltd issued on 2002 EUR 65 million Subordinated Notes. The loan pays fixed interest rate for the first ten years and floating rate interest after that. The interest is payable only from distributable capital. The maturiry is 20 years but it is repayable with the consent of the Insurance Supervisory Authority at the earliest on 2013 or on any interest payment date after that.
Sampo Bank issued on 18 March 2004 EUR 125 million preferred capital securities. The loan pays fixed interest rate for the first ten years and floating rate interest after that. The interest can be paid only from the distributable capital. The loan is perpetual and is repayable only with the consent of the Finnish Financial Supervision Authority at the earliest on 2014 and on any interest payment after that. The loan is included in bank’s Tier1 capital.
Sampo bank issued on 13 October 2004 EUR 100 million preferred capital securities. The loan pays fixed interest rate for the first year and floating rate interest after that, however capped to 8,5% p.a. The interest can be paid only from the distributable capital. The loan is perpetual and is repayable only with the consent of the Finnish Financial Supervion Authority at the earliest on 2014 and on every interest payment date after that. The loan is included in bank’s Tier1 capital.
Banking and Investment Services 70 Unamortised discounts and premiums on liabilities
Premiums Debt securities in issue 1 1 Subordinated liabilities 0 0 71 Debt securities in issue Book value at end of year
Less than 3 months 2,854 2,709 Treasury bills and other eligible bills 607 461 Loans and advances to credit institutions 237 133 Loans and advances to customers 1,884 1,997 Debt securities 127 119
Treasury bills and other eligible bills 363 183 Loans and advances to credit institutions 96 105 Loans and advances to customers 1,687 1,778 Debt securities 108 155
Treasury bills and other eligible bills 498 406 Loans and advances to credit institutions 91 237 Loans and advances to customers 5,474 5,270 Debt securities 113 185
Treasury bills and other eligible bills 219 241 Loans and advances to credit institutions 2 4 Loans and advances to customers 5,806 4,863 Debt securities 42 189
Liabilities to credit institutions and central banks 95 70 Liabilities to customers 172 120 Debt securities in issue 1,435 1,175
Deferred tax assets Included in the Group undertaking’s balance sheets 19 27 Arising from consolidation procedures 1 – Other 0 –
Secured liabilities and commitments Debt securities in issue – – Other liabilities – 21 Off-balance sheet items 716 447 Other commitments
Banking and Investment Services 79 Pension liabilities The basic and supplementary pensions of the staff in the domestic Group companies have been arranged with insurances, while those in foreign subsidiary companies have been arranged according to the local practice.
Other commitments 1 3 of which to or on behalf of Group undertakings – – of which to or on behalf of associated undertakings 0 1 of which to or on behalf of Group undertakings – – of which to or on behalf of associated undertakings 11 1
Interest rate contracts Futures and forward rate agreements – 1,729 – 2,041 Options
Commodity derivatives Commodity forwards – 159 – 96 Other derivative contracts **)
Asset management services based on an agreement between the customer and the company Mutual fund services Securities custody services
Discounting of the provision for outstanding claims of P&C insurance Interest rate used in the Group in calculating the technical provisions of annuities (%)
Sweden 2.00 Finland 3.70 Denmark 2.00 85 Obligatory provisions Employee benefits 99 Restructuring reserve 39 86 Deferred tax Deferred tax liabilities
Deferred tax assets Arising from consolidation procedure 135 Included in the Group undertakings’ balance sheets 47
Guarantee for employees bank loans 6 Guarantee for loan (Kone Building) 11 VAT (Primasoft) 7 Leasing liabilities
Currency-linked derivatives Futures and forwards, open underlying instruments 10,778 current value 62 Share derivatives
Reinsurers’ share – 0 89 Long-term liabilities (5 years or longer)
Amounts owed to credit institutions 0 0 90 Deferred tax Deferred tax liablities
Deferred tax assets Included in the Group undertaking’s balance sheets 1 4
Life Insurance Business 91 Contingent liabilities, pledged assets and derivatives Mortgages for own loans 2 1 Amount of the above loans 3 0
VAT deductions From new construction and property refurbishments during 1999–2004 17 16
Futures and forwards, open For other purposes underlying instruments 390 481 fair value 1 3
Futures and forward exchange, open For other purposes underlying instruments 513 357 fair value 16 25 Futures and forward exchange, fixed
Fixed For other purposes underlying instruments – 168 fair value – –
Commodity index For other purposes underlying instruments 60 40 fair value 1 –
Holding Business Group Parent Company 92 Unamortised discounts and premiums on liabilities Discounts
93 Debt securities in issue Book value at the end of the year
Due to Group undertakings – – – – Due to associated undertakings – – – –
Repayable on interest payment date April year 2009 and on any interest payment date after that on January, April, July and October.
Liabilities Liabilities to credit institutions and central banks 207 – 6 – Liabilities to customers 105 – 105 – Debt securities in issue 624 – 313 – Other liabilities 740 – 61 –
Assets Loans and advances to credit institutions 46 4 55 0 Loans and advances to customers 8 5 4 – Debt securities 99 – 121 –
100 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 0 0 0 101 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.
Rental payments for next year 2 5 2 5 103 Off-balance sheet items Underwriting commitments 17 25 17 25 to Group companies – – – – to associated undertakings – – – –
to Group companies – – – – to associated undertakings – – – –
Risk weighted amount of contracts *) Counterparty Sampo Bank plc 105 Other liabilities and contingent liabilities Group Parent Company
Contrary to its previous final decisions, the Tax Office for Major Corporations made new decisions in December 2004, upon which basis it debited 33.7 million euro of previously refunded VAT in December 2004.
If the decisions made by the Tax Office for Major Corporations in December 2004 remain final despite the appeals process, the net effect in Sampo Group is at most estimated to be approximately 26 million euro.
Members and deputy members of the Supervisory Board, members and deputy members of the Board of Directors/Management and President and Executive Vice Presidents 20 11 4 4 of which performance-related bonuses 3 2 1 1 banking and investment services Members and deputy members of the Board of Directors/ Management and President and Executive Vice Presidents 6 7
life insurance Members and deputy members of the Supervisory Board, members and deputy members of the Board of Directors/Management and President and Executive Vice Presidents 1 1 holding company Members and deputy members of the Board of Directors/ Management and President and Executive Vice Presidents 4 4
108 Loans and advances to and guarantees on behalf of members of administrative and supervisory bodies
of which from banking and investment services 13 – 10 – P&C insurance – – – – life insurance 1 – 1 – holding company 10 – 9 –
Members and deputy members of the Board of Directors/Management and President and Executive Vice Presidents 10 – 8 – Auditors – – – –
Financing MB Mezzanine Fund II Ky 1, 7 Helsinki Finland 62.50 – 12
Investment services 3C Asset Management Ltd 1 Helsinki Finland 69.15 69.15 1 Mandatum & Co Ltd 1 Helsinki Finland 75.00 75.00 1 Mandatum Asset Management Ltd 1 Helsinki Finland 100.00 100.00 6 Mandatum Stockbrokers Ltd 1 Helsinki Finland 80.25 80.25 1 Mandatum Private Equity Funds Ltd 1 Helsinki Finland 100.00 100.00 1 MB Equity Partners Oy 1 Helsinki Finland 40.00 – 0 Sampo Fund Management Ltd 1 Helsinki Finland 100.00 100.00 6 Sampo Powszechne Towarzystwo Emeryltalne S.A.
Life insurance Sampo Life Insurance Company Limited 1, 7 Helsinki Finland 100.00 100.00 484 AS Sampo Elukindlustus 1 Tallinn Estonia 100.00 – 2 AB Sampo Gyvbes Draudimas 1 Vilnius Lithuania 100.00 – 4 AAS Sampo Dziviba 1 Riga Latvia 100.00 – 4 Sampo Towarzystwo Ubezpieczen na Zycie S.A. 1 Warsaw Poland 100.00 100.00 3
Other Oy Finnish Captive & Risk Services Ltd 1 Helsinki Finland 100.00 – 0 0 0 Oy Haveri Ab 1 Helsinki Finland 100.00 – 0 0 0 If IT Services A/S 1 Copenhagen Denmark 100.00 – 0 1 0 Nortwest Holdings Ltd 1,7 London UK 100.00 – 7 7 0
Realty World Ltd 2,7 Helsinki Finland 100.00 – 1 2 1
Primasoft Oy 1, 7 Espoo Finland 40.00 *) Share of votes has been announced in brackets if different from the holding.
In addition, a total of 41 property and housing companies have been accounted for in the consolidated accounts.
Other Automatia Pankkiautomaatit Oy 2 Helsinki Finland 33.33 – 5 24 5 Tapio Technologies Oy 4 Espoo Finland 20.00 – 0 0 -1
Other shares and participations held as financial fixed assets Eurocard Oy Helsinki Finland 11.24 – 1 8*) 1 Arvi Life Oy Helsinki Finland 19.90 19.90 1 0*) 0 Other companies, total number 58 **) 4 *) Based mainly on information from year 2003.
Banking and investment services assets Loans and advances to customers –7 –6 Debt securities –30 –111 Other assets –2 –3 Prepayments and accrued income –4 –5
Debtors Other debtors –9 Cash at bank and in hand –3
Other liabilities –1 –1 Accruals and deferred income –23 0 Subordinated liabilities –4 –19
Liabilities to credit institutions and central banks –7 –6 Debt securities in issue –11 –11 Other liabilities –11 –3 Deferred income –2 –
In our opinion, the financial statements have been prepared in accordance with the Finnish Accounting Act and other rules and regulations governing the preparation of financial statements in Finland. The financial statements give a true and fair view, as defined in the Accounting Act, of both the consolidated and parent company result of operations, as well as of the financial position. The financial statements can be adopted and the members of the Board of Directors and the Managing Director of the parent company can be discharged from liability for the period audited by us. The proposal made by the Board of Directors regarding the disposition of distributable profit is in compliance with the Finnish Companies Act.
Group Communications Hannu Vuola, Head of Group Communications Telephone +358 0 56 0040 Fax +358 0 56 005 E-mail hannu.vuola@sampo.fi