Record-high result within insurance operations and a favorable market environment ensured another good year for Sampo. Based on the proposal made to the AGM, the dividend will rise again for the ninth consecutive year.
Fort the first time, Topdanmark was described in Sampo’s financial statements as a subsidiary in the last quarter of 2017. Sampo has established its position as the biggest shareholder, and currently holds almost 49 per cent of the total number of votes.
All B shares are held by Kaleva Mutual Insurance Company. B shares can be converted into A shares at the request of the holder.
In 2017, If also increased its already high investment pace in IT and digital solutions and the roll-out of a Nordic digital platform continued in Business Area Private. Business Areas Commercial and Industrial are already operational on this digital platform in all four Nordic countries. The system enables pan-Nordic, cross Business Area efficiency, by using
If in 2017 2017 was a good year for If with a solid insurance result and positive growth. If’s combined ratio for the year was 85,3 per cent (86,1 per cent excluding non-recurring items). The technical result amounted to EUR 640 million (658) and profit before taxes to EUR 818 million (824). The result was positively affected by a relatively mild winter.
In If’s Business Area Private, the Private Ahead initiative has engaged nearly 100 leaders on a change journey that aims at raising the organization’s problem-solving skills and customer orientation to a new level. The focus has been on creating Nordic synergies in an increasingly digital environment.
If’s key personnel processes are being reviewed and revised based on the employeeship model. For example, in 2017 an
During 2017, If continued to work with promoting health and reducing sick leave. In Norway, the sick leave trend is gradually improving. Denmark and Sweden are on a stable level, but Finland’s sick leave rate is deteriorating. In Finland, absences due to illness have increased mainly in the customer centers. This is followed up and targeted actions are planned. In the Baltic countries, the number of sick days is very low.
Adaptation to new regulation, for example regarding data privacy and insurance distribution, requires resources to drive the projects, but also to administrate the new governance processes. This has an effect on personnel numbers both in the business as well as in the support functions, including HR. Off-shoring of support services and IT development to the Baltics is continuing to increase manning in the Baltic countries. The off-shoring mainly concerns back office jobs, but customer fronting roles are also being added.
Topdanmark wants to support its employees’ health. Health creates well-being and job satisfaction, and this in turn provides a strong platform, from which Topdanmark can deliver the best service to its customers. In practice, the employees are offered a range of health-related initiatives. For example, cycling activities such as the “Cycle to Work” campaign, healthy canteen food, and a health check. In 2017, 980 employees accepted the offer of a health check, representing 40 per cent of all employees.
Number of EmploNumber of Employyees (FTE)ees (FTE) Topdanmark, 31 December 2017 and 31 December 2016
The goal is for every Mandatum Life employee to be able to develop their personal competence at work. Learning at work is encouraged by opportunities to take part in development projects and working groups that cross unit boundaries. The idea is to use internal job rotation to fill temporary open positions, such as maternity leave vacancies. Opportunities are offered to employees studying alongside their work to complete study-related thesis in their own field.
House fires affect far too many people every year. If informs, instructs, and educates people to prevent fires in all of If’s markets. In Norway, If is a founding contributor to the National Fire Protection Week every year. In Norway, If has also launched a web-based tool called “Brannleken” (“Play with Fire”) to get families to focus on what to do if a fire occurs at their home.
In the future, If is continuing to develop its responsibility work around the same thematic areas. If wants to take responsibility when customers and public safety are concerned. If believes that it is possible to make a difference in society by sharing knowledge and offering expertise.
Employees’ ability to work and well-being require companies to start planning at an early stage. Through effective and responsible rewarding, Mandatum Life helps its client companies develop their management practices, which has a positive impact on inspiring employees and increasing the productivity of their careers. Mandatum Life manages roughly 70 personnel funds used for rewarding the entire personnel, and they cover a total of approximately 35,000 employees, or members. In 2017, 13 personnel funds were established, and the number of members grew by more than 2,000 persons.
Sampo’Sampo’s Ps Paper Sharaper Share Ce Certificaertificatte Pre Project in Figuroject in Figureses 2.2 million Of the seven million paper share certificates, nearly 2.2 million were registered in book-entry accounts within the set time limit. 0.8 per cent of Sampo shares remained to be cancelled.
Wärtsilä Corporation, Board Member; The Finnish Pension Alliance TELA, Chairman of the Board; University of Oulu, Chairman of the Board; Finnish National Opera and Ballet, Member of the Supervisory Board
The Audit Committee convened four times in 2017 and the attendance of members at the meetings was 100 per cent.
The Committee prepares a proposal for the Board on the appointment, employment conditions and other compensation of Sampo Group's Chief Audit Executive.
According to its Rules of Procedure, 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 two members elected from among the members of the Board.
Nordea Bank AB (publ), Board Member, Board Risk Committee, Chairman; Nokia Corporation, Board Member; If P&C Insurance Holding Ltd, Chairman of the Board; Mandatum Life Insurance Company Ltd, Chairman of the Board; Finance Finland, Vice Chairman of the Board; Niilo Helander Foundation, Board Member; Waypoint Group Holdings SA, Board Member
In accordance with the decision of the Annual General Meeting in 2017, the following annual fees were paid to the members of the Board of Directors for their Board and committee work until the close of the Annual General Meeting in 2018: EUR 175,000 to the Chairman, EUR 115,000 to the Vice Chairperson and to the Chairperson of the Audit Committee, EUR 96,000 to the members of the Audit Committee and EUR 90,000 to the other members of the Board. In accordance with the decision of the Annual General
Nordea Group’s Basel III Common equity tier 1 (CET1) capital ratio increased to 19.5 per cent at the end of the fourth quarter 2017 compared to 19.2 percent at the end of the third quarter 2017. Risk exposure amount, REA, decreased EUR 2.5 billion. The main drivers were decreased counterparty credit risk, favourable FX movements and changes to credit quality. CET1 capital decreased EUR 0.2 billion, driven by reduced retained earnings due to OCI impacts and increased deduction related to intangible assets. The decrease was partly offset by a dividend from Nordea’s life and pension operations.
Both risk and expense results rose to new records. The expense result for life insurance segment amounted to EUR 33 million (26) and risk result to EUR 35 million (31).
In accordance with the plan published in May 2017 Mandatum Life’s Baltic subsidiary, Mandatum Life Baltic SE, was merged to the parent company on 1 December 2017. Mandatum Life’s Baltic operations became thereafter branches to Mandatum Life.
If is Sampo Group’s largest business area and on average employed 68 per cent of the personnel. Topdanmark employed 25 per cent and Mandatum Life approximately 6 per cent of the personnel. The parent company Sampo plc employed 1 per cent of the work force.
Sampo Group’s remuneration strategy shall be responsible towards employees and shareholders. This means that the long-term financial stability and value creation of Sampo Group shall guide the remuneration design.
Sampo A shares have been quoted on the main list of the Nasdaq Helsinki since 1988 and all of the B shares are held by Kaleva Mutual Insurance Company. B shares can be converted into A shares at the request of the holder. At the end of the financial year, neither Sampo plc nor its Group companies held any Sampo A shares.
Sampo plc made no repurchases during 2017 and has not purchased its own shares after the end of the reporting period. In accordance with the decision of the Annual General Meeting of 27 April 2017 Sampo Board decided on 14 December 2017 to cancel the 4,648,150 Sampo A shares remaining in the joint book-entry account on 1 December 2017 after all the requests on transfer into the book-entry system were completed.
During 2018 Sampo plc has received 13 notifications of change in holding pursuant to Chapter 9, Section 5 of the
³) The Board of Director's proposal to the Annual General Meeting for the accounting period 2017.
Due to the predominantly external nature of the drivers and development in the competitive environment, managing strategic risks is the responsibility of the executive level senior management. Proactive strategic decision-making is the central tool in managing strategic risks relating to business practices and competitive advantage. The maintenance of internal operational flexibility, in order to be able to adjust the business model and cost structure when needed is also an efficient tool in managing strategic risks. Although strategic risks are not covered by the capitalization process in Sampo Group they may have an effect on the amount and structure of the actual capital base, if this is deemed to be prudent in the existing business environment.
At the group level, the risk management focus is on groupwide capitalization and liquidity. It is also essential to identify potential risk concentrations and to have a thorough understanding of how reported profits of companies would develop under different scenarios. These concentrations and correlations may have an effect on group level capitalization and liquidity buffers as well as on group level management actions.
The sensitivity of the underwriting result and hence underwriting risk is presented by changes in certain key figures in the table Sensitivity Test of Underwriting Result, If
If P&C’s technical provisions are further analyzed by claims years. The output from this analysis is illustrated both before and after reinsurance in the claims cost trend tables. These are disclosed in the Note 25 to the Financial Statements.
FX ExposurFX Exposuree, gr, grososs positions position 207207 0%0% -- 9999 -- --
The graph above includes also the rating requirement from Standard & Poor’s for an A rating. Because capital need based on rating agency criteria – Total Target Capital (“TTC”) for Single-A - is higher than capital need based on SCR, If P&C’s internally set capital floor is based on TTC being EUR 3,098 (2,967) million as of 31 December 2017.
However, market risks shall be limited to the extent that is considered appropriate, even if it is highly probable that the company gains the profit even in the very unfavourable financial market scenarios. In addition, large risk exposures or highly correlated risks shall be covered to prevent unnecessary losses and market risks originating from insurance operations. The investment portfolio shall be managed in a way that market risk taking shall not endanger the normal operations or implementation of planned actions in unfavourable market conditions.
The investment return in the Topdanmark Group excluding life insurance was DKK 539 million in 2017 (DKK 910 million).
MarkMarket Risk Sensitivitieset Risk Sensitivities Topdanmark, 31 December 2017 and 31 December 2016
Within insurance activities the reinsurance companies' ability to pay is the most important risk factor. Topdanmark minimises this risk by primarily buying reinsurance cover from reinsurance companies with a minimum rating of Aand by spreading reinsurance cover over many reinsurers. Accordingly, almost all of its storm cover has been placed with various reinsurance companies with rating A- or better.
The annual longevity risk result and longevity trend is analyzed regularly. For the segregated group pension portfolio, the assumed life expectancy related to the technical provisions was revised in 2014 and for the other group pension portfolios in 2002 and 2007. In total, these changes increased the 2017 technical provision by EUR 105 million (105) including a EUR 87 million longevity reserve for the segregated group pension portfolio. The cumulative longevity risk result has been positive since these revisions. The longevity risk result of group pension for the year 2017 was EUR 6.8 million (2.9).
Annual InAnnual Invvesestment Rtment Returns aeturns at Ft Fair Vair Values sincalues since 2008e 2008 Mandatum Life
The maturities of technical provisions and financial assets and liabilities are presented in the table Cash Flows According to Contractual Maturity, Mandatum Life, 31 December 2017. The average maturity of fixed income investments was 2.5 years in Mandatum Life.
Mandatum Life applies the Solvency II standard formula with transitional measures on equity to the calculation of SCR. Solvency II Own Funds (OF) is also affected by transitional measures, because Mandatum Life applies transitional measures on its technical provisions in regards to its original pension policies with 3.5 per cent and 4.5 per cent guarantees. Also, a volatility adjustment is applied when technical provisions are calculated. The size of SII liabilities with transitional measures of EUR 10,876 million is less than the respective figure without transitional measures (EUR 11,403 million). Hence the transitional measures increase the amount of OF. Mandatum Life does not apply any undertaking-specific parameters in the underwriting risk modules or apply simplified calculations for any of the risk modules of the standard formula.
FixFixed Inced Income Inome Invvesestments in Financial Secttments in Financial Sectoror Sampo Group excluding Topdanmark, 31 December 2017
The entire ordinary share capital of EUR 98 million and reconciliation reserve of EUR 10,753 million (EUR 10,520 million) fully meet with the requirements for inclusion in Tier 1 unrestricted items. In comparison IFRS consolidated group equity as of 31.12.2017 was EUR 13,508 million (Appendix 5 Valuation for Solvency II purposes). All in all the structure of own funds is very solid, because Tier 1 items are 90 per cent of all own funds and the reconciliation reserve is a major contributor.
The reconciliation reserve is a sum of retained earnings, net income for the financial year and other reserves deducted by foreseeable dividends and other distributions adjusted by Solvency II valuation differences, net deferred tax assets, own shares held directly and Topdanmark’s minority interest. The composition of the reconciliation reserve is presented in the table Composition of the Reconciliation Reserve, 31 December 2017 and 31 December 2016.
• Due to the business entities’ adequate capitalization, good profitability and low volatilities, there is no need for extra buffers at Group level. If P&C and Nordea have strong capitalization and sound profitability. OF of If P&C is maintained above the capital level based on the Single-A rating target. Nordea’s amount of capital is governed by Swedish rules which are some of the strictest within European jurisdictions. In addition, both If P&C and Nordea have maintained high profitability and low volatility of profits. In Sampo plc’s opinion, If P&C and Nordea have themselves relatively high buffers included in their capital, then the parent company needs only minor additional reserves, if any.
Board and management share Sampo's view on how to prudently steer business activities and risk management process, although its current steering models and risk management processes do not have directly Sampo Group’s practices as their basis. Hence, Topdanmark's current steering framework and risk management processes are not exactly the same as described next.
The parent company assesses the adequate level of capitalization and the suitability of the capital structure as described at the section “Capitalization at the sub-group level”. Based on this analysis, the parent company estimates the amount of dividends distributed by the subsidiaries to the parent company. In Sampo Group, the excess capital from an operational point of view is held by the parent company which capitalizes the subsidiaries if needed.
Technical provisions and the economic value of insurance liabilities always include a degree of uncertainty as they are based on estimates of the size, timing and the frequency of future claim payments. The uncertainty is normally greater for new portfolios for which comprehensive run off statistics are not yet available, and for portfolios which include claims that take a long time to settle. Workers’ compensation, motor other and motor third party liability, personal accident and liability insurance are examples of non-life products with the latter characteristics. In principle most of the Life products have the latter characteristics embedded within them also. Life insurance policies are also exposed to the behavior of policyholders, because policyholders can change their premium payment intensity or cancel the existing policy.
Sampo Group prefers simple matured instruments and transparency. Hence, most of Sampo Group’s investments are in fixed income securities and listed equities which are tradable and subject to daily mark-to-market valuation. Moreover, Sampo Group has also some illiquid investments in these asset classes – loan instruments and private equity – for which market prices are not that frequently available, but whose fair values can change adversely when the financial strength or future prospects of the issuer deteriorates or the value of collaterals decreases. Sampo Group has tools in place to measure the risks of these instruments as well.
• Sampo’s investment philosophy is to invest into separate companies’ shares and debt instruments instead of allocating funds to chosen industries and geographical areas. These companies are carefully studied before any investments are made and hence environmental, social and governance issues are considered in parallel with other factors affecting risk/return ratio of separate investments. By this method Sampo will acquire only investments that are in line with Sampo’s values at the time of investment. It is the responsibility of the portfolio managers and others involved in the investment decisionmaking process to determine ESG factors as well.
profits increasing the benefits of diversification on a portfolio level is preferred.
In Solvency II, the value of technical provisions is equal to the sum of a best estimate and a risk margin.
iii. Since no new business is written, the cash flows behind the best estimate will run off. Based on these cash flows, the company calculates the future values of the best estimate and the resulting SCRs until full depletion of all the cash flows behind the best estimate. Hence, as a result, the future values of required capital at different future times have been derived.
◦ Effectively, the PP implicitly recognizes the estimated profit of the contract via the difference between the UPR and the PP already at the inception of the contract. This means that the younger the contract, the bigger the difference between the UPR and the PP. As time goes by, both accounts decrease in value and the absolute difference between them becomes narrower and eventually diminishes as the contract expires and both accounts reach zero. In reality, neither item never reaches zero in an active insurance company since new business is written continuously. Assuming that a company would write an equal amount of exactly equal business each day, the difference between the items would remain constant over time.
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax 44 -5-5
TTOOTTAL CAL COMPREHENSIVE INCOMPREHENSIVE INCOME FOME FOR THE FINANCIAL YEAROR THE FINANCIAL YEAR 2,1462,146 1,7601,760
unearned premiums i.e. by the proportion of the insurance premium income that, based on the period covered by the insurance contract, belongs to the following financial year,.
cash flow from these contracts is recognised directly in the balance sheet, without recognising it first in the income statement as premiums written and claims incurred.
Changes in the liabilities of reinsurance have been calculated at variable rates of exchange.
PrProfit fofit for the yor the yearear 637637 836836 185185 576576 44 2,2392,239
Topdanmark's balance sheet on 30 September 2017 was fully consolidated line-by-line. The share of Topdanmark's profit for JanSep 2017 corresponding to Sampo's holding is reported as share of associate's profit/loss and the above-mentioned gain from fair valuation of former associated company is recognised as a separate line item. Topdanmark is reported as a separate segment in all segment reporting. As of 1 October 2017, Topdanmark's p/l items have been recognized line-by-line in the Group's consolidated financial statements.
Topdanmark is the second largest insurance company in Denmark, and is primarily engaged in providing life and non-life insurance products. The company has over one million personal customers and a large amount of farms and corporate clients. Jan - Sep 2017, the premiums earned in P&C business totalled EURm 906. In life insurance, the premiums earned were EURm 815. The company's shares are listed on OMX Nasdaq.
Pension costs - defined contribution plans -67 -64 - defined benefit plans (Note 29) -9 -5
TTotal derivotal derivaativtives held fes held for tror tradingading 14,19914,199 8282 9696 6,1536,153 4343 8181
GrGroup other financial asoup other financial assets, tsets, totalotal 22,94522,945 17,83317,833
TTotal gains/otal gains/ loslossesses rrececororded inded in otherother ccompromprehensivehensivee incincomeome PurPurchaseschases SalesSales 31.12.31.12.
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax 44 -5-5 23 Tax effects relating to components of other comprehensive income
TTotal protal proovision rvision reporteporteded in the BS of Ifin the BS of If 6,9126,912
DerivDerivaativtive financial inse financial instruments (nottruments (note 14)e 14) 6969 -
Holding, tHolding, total financial liabilitiesotal financial liabilities 3,1873,187 3,5513,551 *) The determination and hierarchy of financial assets and liabilities at fair value is disclosed in note 17. Based on the principles of this determination, the bonds of the Holding Company fall under level 2.
RRececognised in incognised in income some statattement and otherement and other ccompromprehensivehensive ince incomeome
P&C, 2017, the If P&C insurance portfolio is well diversified across Business Areas, Countries and Lines of Business. The six Lines of Business are segmented in accordance with insurance class segmentation used in IFRS.
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Businesy Business Ars Areaea If P&C, 2017, total EUR 4,526 million
In If P&C, liquidity risk is limited, since premiums are collected in advance and large claims payments are usually known a long time before they fall due. Liquidity risks are managed by cash management functions which are responsible for liquidity planning. Liquidity risk is reduced by having investments that are readily tradable in liquid markets. The available liquid financial assets, being that part of the assets which can be converted into cash at a specific point in time, are analysed and reported to the ORSA Committee.
Cash FloCash Flowws As Accccorording tding to Co Controntractual Maactual Maturityturity If P&C, 31 December 2017
At the same time, the policy sets the framework for investment of customers' savings, schemes of right to bonus and link savings (customer funds) in Topdanmark Livsforsikring, so that the company can continue to offer attractive savings products to its clients with competitive returns in relation to the accepted investment risks.
The main investment assets are government and mortgage bonds, which comprise primarily Danish government and mortgage bonds. The assets of this asset class are interest rate sensitive - to a significant extent equivalent to the interest rate sensitivity of the non-life insurance provisions. Consequently, the return on government and mortgage bonds should be assessed in connection with return and revaluation of non-life insurance provisions.
When assessing the value and sensitivity of insurance provisions Topdanmark uses the Solvency ll discount curve that has its basis on market yield curve with volatility adjustment (VA). The VA component of DKK yield curve comprises a corrective element based on the spreads of Danish mortgage bonds and European credit bonds. The VA
Generally, the interest rate risk is limited and controlled by investing in interest-bearing assets in order to reduce the overall interest rate exposure of the assets and liabilities to the desired level. Therefore the Danish Mortgage Bonds and Government bonds have a central role in the asset portfolios. To further decrease the interest rate sensitivity of balance sheet, swaps and standard swaptions have been used for hedging purposes.
6 Other shares and participations 20172017 FFair vair value changesalue changes 20162016 FFair vair value changesalue changes
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor’s report, and the Annual Report is expected to be made available to us after that date.
Sampo plc’s Annual General Meeting will be held on 19 April 2018 at 2 pm, at the Helsinki Exhibition and Convention Centre , address Messuaukio 1, Helsinki. The listing of persons who have registered for the meeting will commence at 12.30 pm.