Contents 01 Sampo Group 02 Chief Executive Officer’s Review 04 Strategy 04 Sampo Group’s Return Targets 05 Main Legal Structure 06 Year 2006 in brief 08 History 09 Corporate Governance 13 Organisation 14 Board of Directors 16 Group Executive Committee 18 Group Staff 19 Corporate Responsibility 20 Shares and shareholders
The Sampo Group’s business areas are P&C insurance and life insurance. Sampo is also a significant investor on the Nordic scale, with investment assets in excess of EUR 20 billion. The business areas have clear strategies, based on targets for return on equity. There are few synergies between the P&C insurance and life insurance businesses.
1 March Sampo Bank warns: Emerging markets already too heavily weighted in some investors’ portfolios.
30 May Sampo Bank and WM-data launches a new electronic service concept.
2 June Johan Börjesson is appointed as the Sampo Group’s head of human resources.
Members of the Board of Directors did not receive any other benefits, nor did they participate in Sampo’s option programs or incentive systems.
If P&C Insurance Holding Ltd, Chairman of the Board Sampo Life Insurance Company Limited, Chairman of the Board Kaleva Mutual Insurance Company, Chairman of the Board Aspo plc, Chairman of the Board Alma-Media plc, Chairman of the Board Federation of Finnish Insurance Companies, Chairman of the Board (until 31 December 2006) He holds 212,533 Sampo plc shares directly or through controlled companies
Mika Ihamuotila, born 1964 President and CEO, Sampo Bank plc (until 31 January 2007)
If P&C Insurance Ltd (Sweden), Chairman of the Board If P&C Insurance Company Ltd (Finland), Chairman of the Board Swedish Insurance Federation, Chairman Swedish Insurance Employer Association, Chairman He holds 2,700 Sampo plc shares directly or through controlled companies
Group Executive Vice President, Head of BA Industrial, If P&C If P&C Insurance Ltd (Sweden), Board Member If P&C Insurance Company Ltd (Finland), Board Member CJSC If Insurance (Russia), Board Member He holds no Sampo Plc shares
Sampo plc’s total number of shares on 12 January, 2007 was 582,300,785, of which 581,100,785 were A shares and 1,200,000 were B shares.
Sampo plc – Board of Director’s report 2006 of EUR 0.60 per share for 2005. The dividend, amounting in total to EUR 339 million, was paid on 19 April 2006.
The Annual General Meeting decided on 5 April 2006 to approve the “Sampo 2006” share-based incentive scheme. The
The terms of the share-based incentive scheme and other incentive schemes are available on Sampo’s web pages at www.sampo.com.
Ratings All the main ratings for Sampo Group companies remained unchanged in 2006 and were the following on 31 December 2006.
The risks in Sampo Group are described and aggregated internally through economic capital, which describes the amount of capital needed to bear different kinds of risks. The economic capital tied up in the Group’s operations was EUR 3,419 million (3,148). The requirement is well covered by equity and capital securities. The major risks associated with Sampo Group’s activities in 2006 were credit risk arising from banking and investments, the market risks of investment portfolios, insurance risks and the interest rate and liquidity risks of the banking book. Operational risks and various business risks such as changes in competition or customer behaviour are inherent in all business areas. The perceived risks in the businesses and operating environment did not change significantly during 2006.
Capital and reserves per share € 9.18 7.65 6.11 5.43 5.15
Net asset value per share + equity attributable to the parent company’s equityholders + valuation differences on investments + deferred tax related to valuation differences on investments adjusted number of shares at balance sheet date
Associates are entities in which the Group has significant influence, but no control over the financial management and operating policy decisions. This is generally demonstrated when the Group holds in excess of 20 per cent, but no more than 50 per cent, of the voting rights of an entity. Investments in associates are treated by the equity method of accounting, in which the investment is initially recorded at cost and increased (or decreased) each year by the Group’s share of the post-acquisition net income (or loss), or other movements reflected directly in the equity of the associate. If the Group’s share of the associate’s loss exceeds the carrying amount of the investment, the investment is carried at zero value, and the loss in excess is consolidated only if Sampo is committed to fulfilling the obligations of the associate. Goodwill arising on the acquisition is included in the cost of the investment. Unrealised gains (losses) on transactions are eliminated to the extent of the Group’s interest in the entity.
Trading assets and liabilities, and financial derivative instruments Trading assets comprise debt securities and equities acquired principally for the purpose of selling or repurchasing them in the near term. Trading liabilities consist of obligations to deliver trading securities which the Group has sold to third parties but does not own (short selling). Derivative instruments that are not designated as hedges and do not meet the requirements for hedge accounting are classified as derivatives for trading purposes.
Cash and cash equivalents Cash and cash equivalents comprise cash and balances with central banks, loans and advances to banks repayable on demand and shortterm deposits (3 months).
In the broadest sense, liquidity risks concern the availability of funding and reinsurance. If a liquidity risk materialises, it may jeopardise the conduct of regular business activities and, in extreme cases, may endanger the ability to fulfil daily payment obligations.
Liquidity risks are managed on the legal company level. Table 13 shows a contractual maturity analysis. In the table, financial assets and liabilities are divided into contracts having an exact contractual maturity profile and into other contracts. Only the carrying amount is shown for the other contracts. In addition, the table shows expected cash flows for net technical provisions which, by nature, are associated with a certain degree of uncertainty.
Sampo Bank has also actively entered into ISDA Master Agreements with Credit Support Annexes to ensure the availability of OTC-market counterparties in times of market stress.
Liquidity risks are minor in P&C insurance, since premiums are collected in advance and large claims payments are usually known a long time before they fall due. In addition, by far the majority of P&C Insurance investment assets are liquid at short notice, since they are subject to daily trading in large volumes on well-functioning, transparent exchanges. The expected maturity for technical provisions is presented in Figure 14.
The Sampo Group’s real estate investment risks are the responsibility of the real estate management unit. The most noteworthy risks are changes in property values and changes in rental income. These risks are limited by diversifying holdings both geographically and by type of property. In rental activities, the benefits of diversification are pursued by selections related to the length of the tenancy relationship and the industry of the lessee.
The Employees’ Group Life Insurance Pool was rearranged in 2005 and as a consequence Sampo Life’s proportion of the pool increased remarkably. More than half of Sampo Life’s mortality risk premium comes from the pool. The mortality risk of this business is, however, lower compared to other life business, because it can be re-priced annually.
Sampo Life parent company total 5,962 624 –448 –57 167 27 96 6,371 99 *) Before reinsurers’ share **) Investment contracts
The Group’s internal 12-grade rating system for large and SME corporates has existed in its current form since 1997. This was complemented last year by renewed application scoring models for corporates in the SME retail portfolio. Behavioural scoring models were also launched last year for SME retail corporates and Finnish housing companies. These models utilise public and internal information on borrower payment behaviour. The ratings of listed customers are monitored by a default prediction model that combines stock market and financial statements information.
The Actuarial Committee is a preparatory and advisory board for If ’s Chief Actuary. The Actuarial Committee makes recommendations on policies and guidelines for technical calculations, including the actuarial sections of the Guiding Technical Principles. The Actuarial Committee also monitors technical provisions and gives advice to If ’s Chief Actuary regarding their adequacy.
Financial liabilities at fair value through p/l 57 12 12 507 –66 524
The amount of the acquiree’s revenue since the acquisition date included in the Group’s revenue was EURm 0.8 and the net profit EURm 0.1. The revenue and the net profit for the whole financial year of Industry and Finance Bank has no material impact on the Group’s financial statements.
Change in claims provision for annuities –61 0 –61 –74 – –74
Total derivatives held for trading 6,237 87 57 4,566 87 149
Currency options, bought and sold 82 1 0 618 4 4
Group investments comprise investments in financial assets, property and associates. Investment activities have been concentrated in the
Associates that have been accounted for by the equity method at 31 Dec., 2006 EURm
105IFRS Financial Statements: Other notes 27 Deferred tax assets and liabilities Changes in deferred tax during the financial period 2006
107IFRS Financial Statements: Other notes 29.2 Financial assets at fair value through p/l EURm 2006
Lease and sublease payments recognised as an expense in the period minimum lease payments –2 –1 sublease payments 0 0
Sampo Bank issued on 18 March 2004 EURm 125 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 the bank’s primary equity.
Other long-term benefits consist of the benefits under long-term incentive schemes accounted for for the year (see Note 41).
Primasoft Oy 40.0 1 1) On 9 Nov. 2006 Sampo Plc signed a contract to sell the share stock of Sampo Bank Plc to Danske Bank A/S Assets and liabilities of these companies are included in items classified as held for sale in accordance with IFRS 5.
Total –8 9 Impairment losses on loans and advances and other financial assets EURm 2006
Retained earnings at 1 Jan. 2006 have been adjusted by EURm +7 as a result of Sampo’s internal business combinations and changes in the group structure.
Sampo plc considers the Tax Office for Major Corporations’ December 2004 decisions ungrounded and has appealed the decisions to the
We conducted our audit in accordance with Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the report of the Board of Directors and the financial statements are free of material misstatement. The purpose of our audit of the administration is to examine whether the members of the Board of Directors and the Managing Director of the parent company have complied with the rules of the Companies Act.
Ford, Mazda or Volvo, among others, is offered an If insurance package tailored to the car brand in question. Another example is the March 2006 agreement that provides customers of the Swedish mortage loan institute SBAB with the opportunity to sign up for advantageous home insurance policies with If as insurance provider. Finally, we come to our 2005 initiative with regard to accident, sickness, life and child insurance (so-called
An overriding concern for If is the systematic realization of the opportunities for economies of scale that the Nordic organization presents. In most cases, this translates into both better customer service and increased efficiency. If, like all insurance companies, is IT intensive, with approximately one sixth of If ’s costs directly linked to IT and telephone services. Initiatives during the year included implementation of a new Nordic sourcing agreement with TietoEnator, Telenor/Elisa and Pitney Bowes covering If ’s operations. The arrangement involved a general increase in quality and resulted in savings in excess of msek 100 during 2006. Another example of economies of scale is the Nordic production system for industrial customers, which replaced 14 old solutions during the year. A number of new projects that will involve the realization of economies of scale are under way with regard to, for example, automation of claims processing, streamlining of payment flows and intensifying Nordic product development.
If aims to consciously strengthen the organization’s ability to develop, price and distribute insurance products, and to prevent and manage claims.
Profit for the year improved, compared with 2005. The claims outcome remained the same as in 2005, but with positive results are reported for prior-year claims. The technical result is satisfactory and amounted to msek 644 (494). The combined ratio increased to 91.2% (94.5%).
If has operations in all three of the Baltic countries. In Estonia, If is the market leader with a 36% market share. In Lithuania, the market share is 10% and in Latvia 9%. The number of customers in the Baltic countries is approximately 290,000 and includes both private individuals and companies. Russia is included in the business area as of 2007.
Management is another linchpin in If ’s HR strategy. The need of active coaching and priorities for assignments, for example, is greater than ever. Our managers need to exercise active, individual leadership, which represents a major challenge for many managers who have their subordinates at different locations. If works hard to support its managers, to enable them to perform first-class leadership, for which If established a number of tools and processes in 2005, which were finely tuned in 2006. These include: – Evaluating all 700 managers in accordance with the same template and process, and providing feedback to these managers
The future form of the social security system is being widely discussed in the Nordic countries in consequence of high rates of illness and the expected future impact of demographic developments on national economies. The Finnish model, according to which private insurance companies are wholly responsible for both occupational-injury insurance and motor third party liability insurance, is often advocated. The new government in Sweden plans to expand motor third party liability insurance according to the Finnish model.
Memorandum items Assets and coresponding collateral pledged 2,423 2,898 Assets covered by policyholders’ beneficiary rights 2,946 2,844
Deductible Part of the claims amount that the insured must account for himself, in accordance with the insurance terms, and which is thus deducted from insurance compensation. Special deductibles exist in certain types of insurance, whereby a distinction is made between compulsory and voluntary deductibles. The latter leads to a reduction in the premium.
Expense ratio Ratio between operating expenses and premiums earned expressed as a percentage.
Although Sampo Life’s main country of operation is Finland, it also has subsidiaries in Sweden and the Baltic countries. Sampo Life’s Swedish subsidiary, If Livförsäkring AB, has branches in Norway and Denmark. At the beginning of 2007, Sampo Life merged its Baltic subsidiaries into one company. The new company, SE Sampo Life Insurance Baltic, is domiciled in Estonia, but operates throughout the Baltic area via its branch offices in Latvia and Lithuania.
In co-operation with our main sales channel, Sampo Bank, we counsel our retail customers on how to use foresight in preparing for the financial challenges of both the
A forerunner in insuring personal risk In the area of financial safety, Sampo Life offers a wide range of services for both retail and corporate customers. In pure risk insurance, this was exemplified by life policies linked to housing loans, which attracted brisk demand in line with the demand for housing. An increasing number of companies also acquired additional cover for the death and disability of their key personnel. Sampo Life’s market share in pure risk insurance continued to grow in the year under review, along the lines of recent years.
Sampo Life’s own sales resources, working together with If P&C Insurance Company and Sampo Bank, were successful in sales to corporate and institutional customers in 2006.
The divestment of Sampo Bank to Danske Bank will influence Sampo Life’s business in both Finland and the Baltic countries, at least in the short term. The long-term co-operation agreement with Sampo Bank in insurance sales creates good conditions for the stable growth of Sampo Life, particularly in the retail market segment. However, the transfer of the bank away from the Sampo Group will cause big changes in Sampo Life’s IT environment and in the organisation of administrative services.
Companies increasingly use pension and pure life and disability insurance to increase staff commitment and as an incentive. Thus, sales of Sampo Life’s individual pension policies, the Sesam group pension policies and risk policies to companies were up by 30 per cent on 2005, measured by number of policies.
Sampo Bank provides services for managing daily money affairs and financially securing the future for retail, corporate and institutional customers. The clientele comprises about 1.1 million Finnish retail customers and 100,000 corporate and institutional customers. Sampo Bank’s foreign subsidiaries have about 220,000 customers.
Market shares of the lead managers of bonds of Finnish issuers (Finnish issuers excl. government issues)
Arvo Asset Management At the end of the first full year of operations, the Arvo fund family featured five funds, three of which were launched in 2006. Arvo Asset Management Ltd is an asset manager focusing on value stocks. Value stocks are investments in publicly listed companies whose market price is low in relation to the value of equity in the balance sheet, i.e. the net asset value.
Sampo Bank’s Estonian and Lithuanian subsidiary banks improved their profitability substantially in 2006, and the housing loan portfolio grew particularly strongly. The Latvian bank, still in its early stages, also reported a profit.