Statements and the Board of Directors’ Report 171 Auditor’s Report 172 FOR INVESTORS
To successfully swim against the current, one needs to have courage, expertise and a deep understanding of the matters at hand. Furthermore, one needs to work hard as well as have a certain amount of luck in terms of timing. Sampo has had all of these qualities.
As I mentioned in my video interview broadcast in November 2009, I regard the size of our Nordea holding to be at the right level based on the current market situation. Even in the longer term, I do not expect us to pass the 25 per cent threshold.
The company believes in the increased role of voluntary corporate pension schemes in complementing the statutory pension scheme. In addition it is seen that companies create significant value by covering the person risks of their employees through voluntary insurance covers.
A new HR-portal has been launched. The portal is an easy to use IT-application where all personnel administrative issues can be handled by both employee and leader. During the coming years the portal will be rolled out across all Nordic countries, making it possible for leaders with staff in several countries to fulfil their leader duties across all countries in one system and one process. This will make Nordic cooperation even more effective.
com/cg in fulfilment of the requirement referred to in the Finnish Securities Markets Act, chapter 2, section 6, subsection 3.
In 2009, the Nomination and Compensation Committee comprised the Chairman of the Board (who acted as the Committee ’s Chairman), the Vice Chairman of the Board and three members elected from among the members of the Board. From 8 April 2009, the Chairman of the Nomination and Compensation Committee is Björn Wahlroos (Georg Ehrnrooth until 7 April 2009), and the other members are Anne Brunila, Eira Palin-Lehtinen, Matti Vuoria and Christoffer Taxell. The Committee convened seven times in 2009.
The Sampo Group Executive Committee supports the Group CEO in the preparation of strategic issues relating to Sampo Group, in the handling of operating matters that are significant or involve questions of principle, and in ensuring a good internal flow of information.
Salary and remuneration report Sampo has published a Salary and remuneration report on the company´s website at the address www.sampo.com/cg in accordance with section 7 (Remuneration) of the Corporate Governance Code.
–Mattila holds 1,080 Sampo plc shares directly or through a controlled company.
–Martinsen holds 13,911 Sampo plc shares directly or through controlled companies.
Sampo plc – Board of Directors’ Report for 2009 32 Nordea Bank Became an Associated Company in December 2009 32 Business Areas in 2009 33 P&C Insurance 33 Life Insurance 34 Holding 34 Changes in Group Structure 35 Administration 35 Annual General Meeting 35 Governance 36 Corporate Responsibility 36 Personnel 36 Management Incentive Schemes 36 Risk Management 37
Kari Stadigh on the conference call on Sampo Group’s first quarter results on 6 May 2009.
By the end of 2009, Sampo Group’s own funds exceeded the minimum solvency requirements by EUR 2,315 million (2,656) and the solvency ratio stood at 158.3 per cent (433.6).
Mandatum Life Group’s premium income on own account reached an all-time high. Premiums increased by 52 per cent to EUR 803 million (529). Premiums in the main focus area of unit-linked insurance almost doubled to EUR 551 million (287) and the share of unit-linked premiums was 68 per cent of total premiums (54). Good performance was due to the successful cooperation between the wealth management unit and the proprietary corporate sales force. Towards the end of 2009 the sales through Sampo Bank also picked up significantly. Premium income from the Baltic countries grew by 32 per cent and was EUR 43 million (31).
Administration annual General Meeting The Annual General Meeting of Sampo plc held on 7 April 2009 adopted the financial accounts for 2008 and discharged the Board of Directors and the Group CEO and President from liability for the financial year. Ernst & Young Oy was elected as Auditor. The Annual General Meeting decided to distribute a dividend of EUR 0.80 per share for 2008. The dividend was paid on 21 April 2009.
Board members employed by the company will not be paid a separate fee for Board work during the validity of the employment or service relationship.
Disclosures on related party are presented in the notes to the Group accounts.
In 2006, Sampo’s Annual General Meeting decided on a share-based incentive scheme for the Executive Management belonging to the Group Executive Committee. Under the program, the participants are granted the right to receive up to a pre-determined number of Sampo shares, if Sampo’s share price has outperformed a predefined threshold value and insurance margin targets have been exceeded. The bonus will be paid in Sampo shares, in cash or a combination thereof. Furthermore, the programs are subject to lock-up on Sampo shares received.
During 2009, Sampo plc repurchased a total of 90,000 of its own A shares corresponding to 0.02 per cent of the total number of shares and voting rights. The shares were purchased at an average price of EUR 16.53 per share and the total amount paid for the shares was EUR 1.5 million.
Bond with Warrants, 1998 and options 2000 a shares six conversions in 2005 Warrant and option conversion 7,555,900 570,118,315
Risk Management and Governance 53 Risk Management Principles 53 Risk Governance 54
MaNaGeMeNt of risK eXposUres defiNitioN aNd cLear diVisioN of respoNsiBiLities risk management process
Sampo Group´s objective is to increase its economic value. Therefore, in addition to the statutory financial statements and solvency figures, Sampo Group also uses internal performance, risk and capital measures which are based on fair values of assets and liabilities. This chapter describes the methods Sampo Group uses internally for the measurement of risks and capital. The valuation methods of financial instruments are described in the Note 17 to the Financial Statements.
The capitalisation of Sampo Group and insurance subsidiaries during 2009 is described in the following chapter.
sampo Group’s capitalisation in 2009 Sampo Group continuously monitors the balance of available capital and capital required. The amount of adjusted solvency capital is compared to economic capital and regulatory solvency capital is compared to the regulatory capital requirement. Furthermore, rating agency capital targets for different ratings are compared to the respective rating agency measures of available capital.
The capitalisation is described in more detail in the following subchapters.
The regulatory capital requirements and the regulatory solvency capital of If P&C and Mandatum Life are presented in Table 2. All of the companies fulfilled their regulatory capital requirement during the year 2009. Regulatory solvency capital, which is used to assess the solvency of an insurance company, is not calculated for the holding company Sampo plc.
Figure 8 shows the breakdown of economic capital in the Group between different risks and by the different business areas.
Underwriting Risk in P&C Insurance P&C insurance undertakes the obligation to indemnify the insured in case of claims, and in exchange, the insured pay a premium. Naturally a crucial factor contributing to the profitability of P&C insurance operations is the ability to accurately estimate claims and administrative costs and thereby correctly price the insurance contracts correspondingly.
Given the inherent uncertainty of P&C insurance there is a risk that the future claims are unexpectedly high. Examples include large fires, natural catastrophes such as severe windstorms and unforeseen increases in the frequency or the average size of small and medium-sized claims.
Norway 81.1 finland 23.2 discounted reserves (annuities and part of finnish iBNr)
Other Risks The most significant other risks arise from the uncertainty related to the behaviour of the policyholders. The policyholders have the right to cease paying premiums (lapse risk) and the possibility to interrupt their policies (surrender risk). The expense result of individual unit-linked pension policies is most exposed to lapse risk. Surrender risk also increases the uncertainty of the expense result, but it mainly affects the company’s ALM risk. For Mandatum Life, the effect of surrender risk on ALM exposure is immaterial because in Mandatum Life, approximately 90 per cent of with-profit policies are pension policies in which surrender is possible only in exceptional cases. For ALM risk, surrender risk is therefore only relevant in individual life and capital redemption policies. In these policies, the risk is reduced by the relatively short maturity of the contracts. Furthermore, the supplements to liabilities are not paid out at surrender.
MANDATUM LIFE PARENT COMPANY TOTAL 7.9 1,430 1,156 2,032 1,355 975 698 965
Further, the sensitivity can be measured by examining the sensitivity of the capital position. In Table 11 the total sensitivity of equity is shown separately for the insurance subsidiaries together with the corresponding effect on the discounted value of liabilities, adjusted solvency capital and economic capital. For example a rise in interest rates would reduce the values of financial instruments causing a fall in the Group’s equity. On the other hand, the effect on adjusted solvency capital would be positive due to the fact that value of insurance liabilities would fall as a result of applying a higher discount rate. The effects represent the instantaneous effects of a one-off change in the underlying market variable on the fair values as of 31 December, 2009.
The composition of investment assets in Sampo Group, If P&C and Mandatum Life by industry sectors and ratings for fixed income investments is shown in Table 12.
allocation of investment assets, sampo Group, if p&c and Mandatum Life, 31 december 2009
Fixed income 68.7% Equities 22.7% Private equity 3.9% Real estate 3.2% Hedge funds 1.6% Commodities 0.0%
Money market securities and cash 644 0.2 870 0.1 swedish index-linked bonds 745 7.8 0 0.0 in the calculation of weighted average duration, nominal amount of interest rate derivatives are used instead of the fair values, which are presented in the table.
If P&C writes insurance policies that are mostly denominated in Scandinavian currencies and in euros. The currency risk is reduced by matching technical provisions with investments in the corresponding currencies or by using derivatives.
During 2009 If P&C has developed both a new internal model for the calculation of economic capital as well as a supplementary model to generate economic scenarios for the internal model. During 2010 and 2011 the model and its coverage will be further developed with the goal of having the internal model approved for calculating the capital requirement under Solvency II. Also Mandatum Life further develops its corresponding models.
In 2010 approaches for incorporating the effects of Nordea into the Group’s internal risk and capital reporting will be refined.
Kari Stadigh on Sampo’s role as Nordea shareholder in CEO’s interview video published on 4 November 2009.
** The amount recognised in equity from cash flow hedges for the period totalled EURm -2 (11).
Deferred Tax Assets and Liabilities 136 Taxes 137 Components of Other Comprehensive Income 137 Tax Effects Relating to Components of Other
The financial statements have been prepared under the historical cost convention, with the exception of financial assets and liabilities at fair value through p/l, financial assets availablefor -sale, hedged items in fair value hedges and share-based payments settled in equity instruments measured at fair value.
Financial Derivative Instruments Held for Trading Derivative instruments that are not designated as hedges and do not meet the requirements for hedge accounting are classified as derivatives for trading purposes.
accordance with the generally accepted common practice, International Private Equity and Venture Capital Guidelines (IPEV).
If the fair value of an equity security increases after the impairment loss was recognised in profit or loss, the increase shall be recognised in other comprehensive income. If the value keeps decreasing below the acquisition cost, an impairment loss is recognised through profit or loss.
Operating Leases Leases in which assets are leased out and the Group retains substantially all the risks and rewards of ownership are classified as operating leases. They are included in ‘Investment property’ in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment, and the impairment losses are recognised on the same basis as for these items. Rental income on assets held as operating leases is recognised on a straight-line basis over the lease term in profit or loss.
Principle of Fairness According to Chapter 13, Section 2 of the Finnish Insurance Companies’ Act, the Principle of Fairness must be observed in life insurance and investment contracts with a discretionary participation feature. If the solvency requirements do not prevent it, a reasonable part of the surplus has to be returned to these policies as bonuses.
Other comprehensive income for the year Exchange differences -248 Available-for-sale financial assets -3,029 Cash flow hedges 15 Income tax relating to components of other comprehensive income 333 Other comprehensive income for the year, net of tax -2,928
Consolidated Balance Sheet by Business Segment at 31 December 2008 EURm P&C insurance Life insurance Holding Elimination Group
The changes in the fair value reserve are disclosed in the Statement of changes in equity on p. 84.
Change in provision for claims outstanding Change in provision for claims outstanding (incurred and reported losses) 29 31 61 -19 14 -5 Change in provision for claims outstanding (incurred but not reported losses, IBNR) -109 -13 -122 -122 -19 -141 Change in claims provision for annuities -8 0 -8 23 0 23
Property rented out under operating lease Non-cancellable minimum rental not later than one year 1 1 later than one year and not later than five years 0 1 not later than five years 0 -
Sampo’s holding in Nordea Sampo´s holding in Nordea Bank AB (publ.) exceeded 20 per cent on 11 Dec. and was 20.05 per cent at the end of the year. Consequently Nordea will be conslidated as an associate company from 31 Dec. 2009 in Sampo Group´s accounts.
Allocated to other intangibles - customer-related* 330 - other long-term intangibles 95
Financial assets designated as at fair value through p/l Debt securities Government bonds 66 122 Other debt securities 70 211
Cash at bank and in hand 153 149 Short-term deposits (max 3 months) 138 110
Provision reported in the balance sheet 2,228 269 375 399 451 522 740 1,258 6,240 of which established vested annuities 1,175 65 54 63 66 57 46 9 360
Reinsurers’ sharet Provision for unearned premiums 0 0 Provision for claims outstanding -4 -4
Used for release of obligations - - -2 - - Exchange differences on foreign plans 32 -44 4 -3 3 2
The amount of the performance-related bonus is based on the value performance of Sampo’s A share and on the insurance margin (IM). The value of one calculated bonus unit is the trade-weighted average price of Sampo’s A-share at the time period specified in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The pre-dividend starting prices vary between eur 16.49 – 20.17. The maximum value of one bonus unit varies between eur 28 – 30, reduced by the dividend-adjusted starting price. The IM criteria in the schemes has three levels. If the insurance margin reaches 4 per cent or more, the bonus is paid in its entirety. If the insurance margin is between 2 – 3.99 per cent, the payout is 50 per cent. In the case of insurance margin staying below these benchmarks, no bonus will be paid out.
Financial income and expense 5 Income from shares in Group companies 488 381 Income from other shares 81 133 Other interest and financial income
Authorised Public Accountants Ernst & Young Oy Auditing fees -0.3 -0.2 Certificates and expert opinions 0.0 -0.0 Tax consulting 0.0 -0.0 Other fees -0.4 -0.3 5 Financial Income and Expense
Carrying amount at end of year 0 1 0 1 7 Property, Plant and Equipment
We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Sampo plc for the financial period 1.1.2009 – 31.12.2009. The financial statements comprise the consolidated balance sheet, statement of comprehensive income, statement of changes in equity, cash flow statement and notes to the consolidated financial statements, as well as the parent company’s balance sheet, income statement, cash flow statement and notes to the financial statements.
The contact information for Group subsidiaries is available on the Internet at www.sampo.com.