Reality has been worse than anybody could reasonably have expected. Not only are most of the main stock exchange indices down by about 50 per cent in 2008, but the real economy has taken a severe beating, too. And the bad news seems to continue. It is difficult to find an economist or an executive with a positive view on the near future. At times one gets the feeling that there is a competition on who can come up with the scariest scenario for the next few years.
Lastly I wish to thank all those people – investors, analysts, journalists, clients and Group personnel – that I have had the pleasure of working with during my eight years as CEO.
Sampo plc manages the investment portfolios on behalf of the insurance subsidiaries and has significant investment
Sampo Life Insurance Company Limited (currently Mandatum Life) is established. The new company launches its operations at the beginning of 1997, when the company begins to sell life and pension insurance policies.
Board-Appointed Committees and Executive Committee The Board may appoint committees, executive committees and other permanent or fixed-term bodies for duties assigned by the Board. The Board confirms the Charter of Sampo’s committees and Executive Committee, and also the guidelines and authorisations given to other bodies appointed by the Board.
The Board of Directors’ Audit Committee comprises at least three members elected from among those Board members who do not hold management positions in Sampo and are independent of the company. Also participating in the meetings of the Committee are the Responsible Auditor, the Group CEO, the Group CFO, the Group Chief Counsel, the Group Chief Audit Executive, the Chairman of the Group Investment Committee, the member of the Group Executive Committee responsible for risk control and the Group Chief Risk Officer.
In its auditing work, the Internal Audit complies with the international professional standards approved by the IIA (the Institute of Internal Auditors).
Tom Berglund, born 1951 professor, swedish school of economics and business administration (helsinki) Positions of Trust: European Financial Management (Wiley-Blackwell), Member of Editorial Board, The European Shadow Financial Regulatory Committee, Member –Member of the Board of Directors of Sampo plc since 25 May 2000. –Berglund holds 3,586 Sampo plc shares directly or through a controlled company.
Ilona Ervasti-Vaintola, born 1951 group chief counsel, principal attorney Positions of Trust: Fiskars Corporation, Board Member, Fortum Corporation, Board Member, NASDAQ OMX Oy (Finland), Board Member (until 16 May 2008), Finnish Literature Society, Board Member, The Panel on Takeovers and Mergers at the Central Chamber of Commerce of Finland, Member, Central Chamber of Commerce of Finland, Legal Committee, Chairman – Ervasti-Vaintola holds 309,131 Sampo plc shares directly or through controlled companies.
EUR 675 million in profit and was reduced by the dividends and share buy-backs of EUR 853 million, the change in the fair value reserve by EUR 2,681 million and the exchange rate changes of EUR 249 million.
During the latter part of the year, life insurance sales were affected by the general economic uncertainty. There was, however, positive development in pure risk premium income.
HOLDING Sampo plc owns and controls its subsidiaries engaged in P&C and life insurance. In addition Sampo plc held on 31 December 2008 approximately 12 per cent of the share capital of Nordea, the largest bank in the Nordic countries, and had more than a billion euros in cash or equivalent on its balance sheet.
Change in liabilities for insurance and investment contracts 367 443 97 -241 180
A shares. Board members employed by the company will not be paid a separate fee for Board work.
Georg Ehrnrooth, Chairman of the Board, announced at the that he will leave Sampo’s Board of Directors at the end of the AGM of 2009. In order to ensure continuity in the management of Sampo Group, the Board’s Nomination and
Ricard Wennerklint was nominated as Deputy Managing Director of If Group’s parent company If P&C Insurance
Jukka Kurki was appointed as CFO and deputy for the Managing Director for Sampo plc’s subsidiary Mandatum Life starting from 1 March 2009. Kurki has previously acted as Chief Actuary for Mandatum Life. Matti Rantanen, Deputy Managing Director, will retire from Mandatum Life in February 2009. Rantanen will continue as Managing Director for Mutual Insurance Company
In 2006 Sampo’s Annual General Meeting decided on a share-based incentive scheme for the Executive Management.
The Annual General Meeting of 15 April 2008 authorised the Board to acquire in one or several lots a maximum of 50,000,000 Sampo A shares. The shares can also be acquired in a proportion differing from the proportions of shares owned by the shareholders. The share price will be no higher than the highest price paid for Sampo shares in public trading at the time of purchase. The authorisation will be valid until the close of the next Annual General Meeting, nevertheless not more than 18 months after AGM’s decision.
The Most Significant Risks to Operations Sampo as a diverse financial institution is exposed to variety of different risks, both financial and non-financial. The major risks associated with Sampo Group’s activities in 2008 were insurance risks arising from P&C and Life insurance business areas, as well as market and credit risks arising from the Group’s investment portfolios, including the investment assets of Sampo plc.
Insurance businesses are based on the bearing of risks resulting from the randomness of insured events. Insurance risk is the risk that the cost of future insurance claims will be higher than anticipated. During 2008, Sampo Group’s business risk profile in the insurance businesses remained relatively stable.
RETURN ON EQUITY (AT FAIR VALUES), % + profit before taxes ± change in fair value reserve ± change in valuation differences on investments - tax (incl. change in deferred tax relating to valuation differences on investments)
| Risk Governance and Reporting Structure ............... 46 3 Valuation Methods of Financial Instruments .......... 48 4 Capital Management in Sampo Group .................. 48
The changes in Sampo Group’s risk profile mainly result from the developments in the financial markets which have been unprecedented during 2008. Sampo Group’s business risk profile in the insurance subsidiaries has however remained relatively stable. During the year we have also continued to develop our risk and capital management systems and processes as we prepare for Solvency II.
The actuarial department in Mandatum Life is responsible for the risk management of underwriting and provision risks.
¹) Included in this category are financial assets that are measured in whole or in part by reference to published quotes in an active market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm's length basis.
(1106/2000). The adjusted solvency is determined on the basis of the group financial statements as regulated by the Financial
The Underwriting Committee is responsible for the monitoring of compliance of the underwriting principles as defined by the Underwriting Policy (UW policy). The UW policy is the principal document for underwriting activities and sets general principles, restrictions, limits and directions for the organization of underwriting activities. The Board of Directors of If
With respect to life insurance, underwriting risk is mostly related to biometric risks, i.e. the mortality rate and the incidence of disability and illness. These risks are limited through careful risk selection, by pricing to reflect the risks and costs, by setting upper limits for the protection granted and by reinsurance.
Liabilities arising from insurance and investment contracts of Mandatum Life group*)
Sampo plc’s investment organisation makes day-to-day investment decisions based on principles set in Investment Policy.
Sampo Group’s Nordic focus and the fact that technical provisions relate to the Nordic currencies.
Holding company translation risk EUR 0 1,582 0 0 0 0 0 0 0 0 0 10% depreciation of foreign currency against Euro, EURm, 2008 -311 14 70 0 0 0 -1 17 1 -2 10% depreciation of foreign currency against Euro, EURm, 2007 -469 -8 -3 5 0 1 0 4 0 -5
Credit risk arises from investments as well as insurance and re-insurance contracts.
Ratings for ceded treaty and facultative premiums, If P&C, 31 December 2008 and 31 December 2007
In order to limit operational risks, Mandatum Life has approved a number of policies including e.g. Security Policies,
{ Statement of Changes in Equity } Attributable to the equity holders of the parent company
The net cash flows of banking and investment services (discontinued operations) EURm 2008 2007
Financial assets and liabilities are offset and the net amount is presented in the balance sheet only when the Group has a legally enforceable right to set off the recognised amounts and it intends to settle on a net basis, or to realise the asset and settle the liability simultaneously.
DERIVATIVES HELD FOR TRADING Derivative instruments that are not designated as hedges and embedded derivatives separated from a host contract are treated as held for trading. They are measured at fair value and the change in fair value, together with realised gains and losses and interest income and expenses, is recognised in profit or loss. If derivatives are used for hedging, but they do not qualify for hedge accounting as required by IAS 39, they are treated as held for trading.
REINSURANCE CONTRACTS A reinsurance contract is a contract which meets the IFRS
National accounting standards are applied to all insurance contracts and to investment contracts with DPF, with the exception of the equalisation provision and changes in it.
The guaranteed interest used in the direct insurance premium basis varies on the basis of the starting date of the insurance from zero to 4.5 per cent. The interest rate used in discounting liabilities is the same or lower than that used in premium calculation. Most of the liabilities of the accrued benefits of pension business with DPF are discounted by an interest rate of 3.5 per cent, also being the highest discount rate used. The highest discount rate used for accrued benefits is 3.5 per cent.
In adopting the IFRS on 1 January 2004, Sampo did not apply IFRS 2 Share-based payments to the year 2000 option programme, in accordance with the exemption permitted by IFRS 1.
The revised IAS 27 Consolidated and Separate Financial Statements requires that changes in the ownership interest of subsidiary are accounted for as an equity transactions, if the control of a subsidiary is not lost. On loss of control, any retained interest will be measured at fair value through p/l. Furthermore, after the revision, losses incurred by the subsidiary may be allocated to the non-controlling interest, even if the losses exceed their equity investment in the subsidiary.
Net income from investments includes exchange differences Arising from insurance business 20 10 Arising from investments 2 -1
Other income and expenses comprise rental income, maintenance expenses and depreciation of investment property.
Change in provision for claims outstanding (incurred and reported losses) -704 55 -650 -702 44 -658 Change in provision for claims outstanding (incurred but not reported losses, IBNR) -670 18 -651 -707 24 -683
Change in claims provision for annuities -11 - -11 -10 - -10
Interest rate used in calculating the technical provisions of annuities (%)
Change in liabilities for insurance and investment contracts in total, net 681 -145
Financial assets and liabilities have been categorised in accordance with IAS 39.9. In the table are also included interest income and expenses, realised and unrealised gains and losses recognised in P/L, impairment losses and dividend income arising from those assets and liabilities. The financial assets in the table include balance sheet items ‘Financial assets’, ‘Investments related to unit-linked contracts’ and ‘Cash and cash equivalents’.
EURm Equipment Equipment At 1 January Cost 117 105 Accumulated depreciation -88 -78 Net carrying amount at 1 January 29 28
Closing net carrying amount at 31 December 4 1 5 4 1 5
**) Excluded from accounting for by the equity method because of their immaterial effect on consolidated figures.
Equity derivatives Exchange traded derivatives Equity and equity index options - - - 1 - 0
Total financial assets designated at fair value through p/l 38 -
Changes in tax rates 6 Tax from previous years 19 5
Incurred and reported losses 221 229 Incurred but not reported losses (IBNR) 156 200
Reinsurers' share Provision for unearned premiums 0 -1 Provision for claims outstanding -4 -4
Mandatum Life issued in 2002 EURm 100 Capital Notes. The loan is perpetual and pays floating rate interest. The interest is payable only from distributable capital. The loan is repayable only with the consent of the Insurance Supervisory Authority and at the earliest on 2012 or any interest payment date after that. The loans is wholly subscribed by Sampo plc.
Present value of estimated pension obligation 390 406 405 359 302 Fair value of plan assets 220 255 228 203 178
Reconciliation of plan assets: At the beginning of the year 255 228 203 178 155
Cash at balances at central banks 9 8 12 8 Investments
Reserves at 31 Dec. Legal reserve 370 370 Fair value reserve -2,364 317
KEY MANAGEMENT PERSONNEL The key management personnel in Sampo Group consists of the members of the Board of Directors of Sampo plc and Sampo Group’s Executive Committee.
Post employment benefits include pension benefits under the Employees’ Pensions Act (TEL) in Finland and voluntary supplementary pension benefits.
Depreciation according to plan Property, plant and equipment 0 -1 Intangible assets 0 -1
Debenture loan, nominal value EURm 600, call 21.4.09 due 2014 - annual fixed interest 4.625% until April 2009, thereafter floating 597 589
Deferred tax assets Timing differences 4 5 Fair value reserve 1 -
Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.