1� april, 2005 Housing Loan Bank of Finland plc is renamed Sampo Housing Loan Bank plc 19 may, 2005 Aku Leijala is appointed Managing Director of 3C Asset Management 19 may, 2005 Juhani Elomaa is appointed Head of Mandatum Private Bank 22 June, 2005 Line Hestvik is appointed Head of Private business area, If P&C
In 2005, the Executive Committee convened regularly, once a month, at the request of the CEO. The Group MD Committee to the Group Executive Committee, which assists the Executive Committee, normally met once a week, except when the Executive Committee convened in its entirety.
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.
Exchange offer consideration 7 February, 2001 Mandatum shareholders 4,754,255 91.46 A shares
- The holding of Sampo A shares by Barclays plc and funds managed by it increased to 5.00 (4.96) per cent of the total number of Sampo shares on 25 October, 2005.
Profit before taxes from discontinued operations 1 0 –1 –1 –2
- Paragraph 3 of Article 8 of the Articles of Association and the reference
Hannu Kokkonen, Managing Director of If P&C Insurance Ltd (Sweden) and of If P&C Insurance Company Ltd (Finland) will retire in the first half of 2006. Ricard Wennerklint was appointed to succeed him as Managing Director of If P&C Insurance Ltd (Sweden) as of 1 January 2006. Petri Ekman was appointed Deputy Managing Director of If P&C Insurance Company Ltd (Finland) in November 2005. Kokkonen will continue to act as Managing Director of If P&C Insurance Company Ltd (Finland) until his retirement.
risk management The main objective of risk management is to ensure that the capital base is adequate in relation to the risks arising from busiratings at 3� december 2005 standard rated company moody's and poor's
Banking and investment services Sampo Group’s main banking and investment service companies are organised under Sampo Bank plc and its subsidiaries.
The year 2005 was characterised by strong growth in retail lending and mutual funds. Total operating income in banking and investment services was EUR 736 million (682) and expenses were EUR 420 million (403). Profit before taxes rose to EUR 316 million (274). Net interest income rose to EUR 341 million (322), with more than half of the growth being derived from the Baltic operations. In Finland, strong growth in lending volumes more than compensated for tightening of spreads. Operating expenses rose mainly because of growth in the Baltic operations and modest wage inflation in Finland. The cost to income ratio improved to 57.3 per cent (60.0). RoE was 23.1 per cent (13.7).
p&c insurance If is the leading property and casualty insurance company in the Nordic region, with insurance operations that also encompass the Baltic countries. If P&C Insurance Holding Ltd, headquartered in Sweden, is the parent company for property and casualty insurance within the Sampo Group. Business operations are conducted via subsidiaries and branch offices in the Nordic and Baltic countries.
Profit before taxes for Sampo Group’s life insurance operations was EUR 234 million (142). The result was supported by net investment income, which rose to EUR 423 million (285), excluding the return on investments in unit-linked con-
Return on equity (at fair values) % 28.4 26.5 14.0 1.5 –15.3 Return on assets (at fair values) % 4.4 4.0 3.3 0.8 –1.6
operating profit Formula shown above in connection with calculation of Group key figures.
Cash flows from financing activities Subscription of share options 30 49 Acquisition of own shares –88 – Dividends paid –127 –839 Issue of debt securities 15,022 14,763 Repayments of debt securities in issue –13,232 –11,792 Net cash from financing activities 1,605 2,182
The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates and judgements which may have an impact on income, expenses, assets and liabilities and contingent liabilities. Although these estimates and judgements are based on the best information available on the balance sheet date, the actual results may differ from them.
foreign currency translation The consolidated financial statements are presented in euro, which is the functional and reporting currency of the Group and the parent company.
other financial liabilities Other financial liabilities comprise deposits and other liabilities to credit institutions and customers, debt securities in issue, and other financial liabilities.
- Bankruptcy: Declared bankrupt. When a default occurs, the impairment of a loan is assessed. The amount of the loss is measured as the difference between the loan’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred), discounted at the loan’s original effective interest rate, less the collateral’s fair value. The difference is recognised as an impairment loss in profit or loss. The costs of obtaining and selling collateral are included in the calculation of the cash flows of a collateralised loan.
Fair value hedging is used to hedge individual fixed interest rate loans, debt securities in issue, as well as index-linked deposits and index-linked debt securities in issue. The hedging instruments used include interest rate swaps, interest rate and cross currency swaps and, for indexlinked items, index options. In addition, fixed interest rate loan portfolios are hedged by using interest rate swaps.
provisions A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the Group can reliably estimate the amount of the obligation. If it is expected that some or all of the expenditure required to settle the provision will be reimbursed by another party, the reimbursement will be treated as a separate asset only when it is virtually certain that the Group will receive it.
Sampo has arranged defined benefit plans in Sweden and Norway, and defined contribution plans in other countries. The most significant defined contribution plan is that arranged through the Employees’ Pensions Act (TEL) in Finland.
All Sampo Group companies fulfilled the regulatory minimum capital requirements during 2005.
Group capital 4,348.1 3,439.8 Sectoral items included in own funds 2,733.1 1,987.8 Goodwill and other deductions from own funds –2,254.5 –1,291.0 Own funds, brutto 4,826.7 4,136.6 Non-transferable items –493.8 –500.0 Group’s own funds, total 4,332.9 3,636.6 minimum requirements for own funds, total 2,209.3 2,132.2 Group solvency 2,123.6 1,504.4 Group solvency ratio, % 196.1 170.6 (Own funds % of minimum requirement)
Derivatives Net amount 55 –48 –1 –21 Net 364 –327 –305 –21 economic capital The risks in Sampo Group are described and aggregated internally through the concept of economic capital. Economic capital describes the amount of capital required in the Group in order to bear different kinds of risks.
sampo Group, financial assets and liabilities by segment, dec. 3�, 2005 segment p&c life Holding elimi- Group eUrm Banking insurance insurance and other nations total
The surrender risk included in liabilities is the most noteworthy in with-profit insurance. In pension insurance, surrender is possible only in exceptional cases, so that the real surrender risk is in life insurance
Impairment losses on loans and receivables were EUR 1 million positive.
P&C insurance underwrites business in the Nordic and Baltic countries (Figure 15). The insurance portfolio is relatively diversified as business is underwritten in different geographical areas and in several classes of insurance.
Claim ratios of Sampo Life after reinsurance 2005 2004 risk claim claim risk claim claim eUrm income expense ratio income expense ratio
The most noteworthy of the insurance risks related to pension insurance is the increase in life expectancy. The assumed life expectancy in group pension premiums and liabilities was raised in 2002 and, since then, the mortality results in group pension policies have been profitable (Table 18). In most individual pension insurance, the longevity risk is smaller than in group pension insurance due to the fixed term of the policies and because most policies have been issued with life insurance that compensates the longevity risk. In some older individual policies, the mortality rate and structure of products differs from the remainder of the portfolio, for which reason the liabilities of such policies were supplemented on 31 December 2004. The mortality result within individual pension policies has been close to zero during recent years (Table 18).
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 Technical Guidelines. The Actuarial Committee also monitors technical provisions and gives advice to If ’s Chief Actuary regarding their adequacy.
Income 2005 Banking and investment services 683 – – – 53 – 736
The revenue of insurance businesses includes insurance premiums, consisting of premiums earned for P&C insurance and premiums written for Life insurance.
On the basis of Finland’s Act on Workers’ Compensation and Motor Third Liability, a collective guarantee item is accumulated collectively by the insurance companies selling these insurances. The idea is to guarantee payments of claims to policyholders in the case that one of the above-mentioned companies falls into liquidation or bankruptcy. Previously the collective guarantee item was recognised in technical provisions. As the purpose of accumulating the collective guarantee item is to prepare to settle a future obligation, the item is recognised, according to the Framework for the Preparation and Presentation of Financial Statements of IFRS, in the Group’s equity until it is probable that the obligation will have to be settled.
Impact on the figures as a result of adopting the international financial reporting standarts (IFRS) Transfer of preferred capital notes to liabilities 1) –10 –10 –10 Recognition of equalisation provision into p/l account 2) 4 4 4 Valuation of shares
Deferred taxes 6) –69 –56 –125 –125 Transfer of minority interest to equity 7) 17 17
Net interest income from banking and investment services, total In net interest income 341 322 In net income from financial transactions 55 52 In net income from investments –2 8
Insurance claims paid Claims paid –2,240 162 –2,078 –1,656 177 –1,479
In the table above are presented fair values and carrying amounts of financial assets and liabilities, including values of those financial assets and liabilities which are carried at fair value. The detailed measurement bases of financial assets and liabilities are disclosed in the Accounting policies.
In Banking and investment services, interest rate and interest rate and cross currency interest rate swaps as well as FRAs are designated as fair value hedges, using them as hedges against the changes in market interest rates. Also different kinds of index-linked options, which are used as hedges against changes in fair values of corresponding written indexlinked options due to changes in market conditions, are designated as fair value hedges. These index-linked derivatives may be based on interest rate, equity or foreign exchange indices. Interest rate swaps are used as cash flow hedges against decrease in future interest payments of floating rate loans. In these swaps the Group pays floating interest rate and receives fixed interest rate.
Financial assets available-for-sale Debt securities Treasury bills and other eligible bills – – Other debt securities – 2 - Issued by public bodies – 2 Government bonds – 2 Total debt securities – 2
Financial assets designated as at fair value through p/l Debt securities Issued by public bodies 12 7 Government bonds 8 6
Accumulated depreciation –1 –1 Accumulated impairment losses –18 16 Net carrying amount at 31 Dec. 21 54
The historical cost of the equity securities related to unit-linked contracts was EURm 1,085 (EURm 868) and that of the debt securities EURm 7 (EURm 14).
Other intangible assets comprise mainly IT software used in Finland (EURm 19). The remaining amortising period is around 5 years.
23 property, plant and equipment land and eUrm buildings equipment total
Disposals –6 –1 –6 Transfers between items -From owner-occupied properties to investment properties 0 – 0 Impairment losses reversed 1 – 1
Banking and investment services Debt securities in issue Certificates of deposit 3,384 3,289 Bonds and notes 4,238 2,623 of which in foreign currency 745 603
Amounts used during the period –13 –2 –15 Unused amounts reversed during the period –3 –3 Discount effect – 18 18
assets pledged as collateral for liabilities or contingent liabilities assets liabilities/ assets liabilities/ eUrm pledged commitments pledged commitments
Other irrevocable commitments 31 45 other Assets covered by policyholders’ beneficiary rights 303 296 assets pledged as collateral for liabilities or contingent liabilities assets liabilities/ assets liabilities/ eUrm pledged commitments pledged commitments
Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec. 0 –
assets pledged as collateral for liabilities or contingent liabilities assets liabilities/ assets liabilities/ eUrm pledged commitments pledged commitments assets pledged as collateral Investments
The number of Sampo plc’s shares at 31 December 2005 was 571,318,315, of which 570,118,315 were A shares and 1,200,000 were B shares. The counter book value of the shares is EUR 0.17. Each A share has 1 vote and each B share has 5 votes at General Meetings. All the B shares are owned by the Kaleva Mutual Insurance Company. B shares can be converted into A shares at the request of the holder of B shares.
Average subscription price **) – 6.74 6.74 Subscription period ended/ends 31 May 2005 31 Jan. 2007 *) Include 382,200 shares subscribed in December 2005 and entered in the Trade Register in January 2006.
Short-term employee benefits 6 6 Post employment benefits 2 2 Other long-term benefits 6 –
The interest on loans to the key management personnel is at least as high as on the staff loans referred to in the Income and Capital Tax Act, section 67. Also other terms of the loans equal to the terms of the staff loans confirmed in the Group. The loans are secured. The terms of the loans to the entities controlled or significantly influenced by the above mentioned persons equal to those granted to other corporate customers.
carrying Holding amount/ eUrm country no. of shares % fair value p&c insurance listed companies
Unit trusts APS Japan Growth Fund JPY KY 141,555 12 APS Small Cap Alpha KY 300,566 25 Dnb Aktiehedgefond Primus SE 482,194 6 EQT Northern Europe UK 1 LP FI 1,716,138 25 Mandatum Emerging Asia Growth FI 2,101,128 55 Mandatum Europe Enhanced Index FI 90,133,374 141 Mandatum North America Enhanced Index USD FI 77,154,366 99 Mandatum US Small Cap Value Growth USD FI 64,181,888 95 Private Energy Market Fund LP FI 682,132 6 Sampo Japan Equity Growth FI 489,764,917 73 Other unit trusts 11 Unit trusts in total 547 real estate shares Flat 5, 6 Aldford Street, London GB 1 1
Liabilities Liabilities to credit institutions Other than repayable on demand – 200
For hedging purposes Interest rate derivatives Interest rate swaps 4 618 11 2 –
Deferred tax liabilities Timing differences 5 Total 5 22 debt securities in issue carrying nominal eUrm amount amount
Subordinated liabilities with a carrying amount more than 10% of the total amount of such liabilities 597 Other subordinated liabilities – Total 597 of which perpetuals – Due to Group companies – Due to associates –
Balance sheet item Other liabilities – – 0 0 Pledged for own liabilities – – 0 0 Pledged for off-balance sheet items 3 – – 3 Pledged on behalf of Group companies – – – – Pledged on behalf of other companies – – – –
37 other commitments Sampo plc received value added tax refunds in 2004 based on the Tax Office for Major Corporation’s final value added tax refund decisions. Sampo plc is the entity liable to tax in a tax group of Sampo plc for the purpose of the Value Added Tax Act. The tax refund was based on a refund application made by a member of the group.
Loan and card applications increased substantially, as did the use of bank overdrafts and consumer credits. Certain financial management tools were introduced in the web bank that allow customers to classify their expenditure in order to monitor it more closely.
The Finnish Franchising Association elected Miika Muroma, Realty World franchise entrepreneur, as Finland’s franchising entrepreneur for 2005. The real estate agency located at the Sello shopping centre has grown to become the largest agency in the chain in less than three years. The franchising entrepreneur has been actively involved in various Realty World chain development projects and has also heavily invested in training for himself and his staff.
Activity in the mergers and acquisitions market was very busy during the year. Sampo Bank was Finland’s leading provider of finance and acted as the mandated lead arranger in the corporate restructuring of Tradeka, Loparex and AKatsastus, for example. During the year, Sampo Bank participated in a significant number of mergers, acquisitions and other restructuring.
Sampo Life was able to increase efficiency in 2005. Its expense ratio fell below 90 per cent, an improvement of seven percentage points on the previous year. To ensure future cost-efficiency and quality of operations, Sampo Life initiated a systematic modernisation of its IT systems.
In practice, the mutual fund’s investments are carried out by dispersing assets between several emerging market funds managed by Mandatum Asset Management and carefully selected foreign asset managers. The Sampo Emerging Equity Markets fund immediately gained great popularity, especially among private customers, and by the end of the year the fund had 6,700 customers.
Sampo in the Baltic countries the significance of the Baltic countries to Sampo’s operations continued to increase in 2005.
All of Sampo’s Baltic banks reported a profit, and return on equity was at a particularly good level in Estonia. The combined operating profit of the Baltic banks was EUR 14 million, while one year ago it was at EUR 8.2 million.
A reform of the law on equality between men and women came into effect on 1 June, 2005. For some years already, Sampo has monitored equality issues as part of the employer-employee cooperation process. When the law reform was pending, an equality workgroup was established consisting of both employer and employee representatives. In response to their proposals, an equality plan for 2006 was approved for all of Sampo’s banking and long-term savings units in Finland. The equality plan focuses on recruitment and internal labour markets, development opportunities and career development, compensation, family-related leaves and sexual harassment.
Liabilities for insurance and investment contracts 7,885 4,738 12,623 Liabilities for unit-linked insurance and investment contracts 1,262 1,262
Assets Cash and balances at central banks 921 269 179 -206 1,163 Financial assets at fair value through p/l 2,538 176 38 5 -5 2,751
Mandatum Securities Ltd Visiting address: Unioninkatu 22, Helsinki, Finland Postal address: P.O.Box 66, FI-00131 HELSINKI, FINLAND
AB Sampo bankas (Bank) Gelezinio Vilko 18 A, LT-08500 VILNIUS, LITHUANIA
Our extended cooperation with Ford and Volvo has proved to be another Nordic success. For some time now, If and a number of car makes within the Ford Group have engaged in close cooperation in such areas as sales, product development and repair control. The cooperation is now being renewed and expanded to include all car makes in all of the Nordic countries over the forthcoming five-year period. The agreement provides If with an excellent platform upon which to continue to lead the Nordic market for motor insurance.
• Employees regard If as the most attractive employer in the industry.
With an estimated premium value of approximately SEK 160 billion, the Nordic region is the seventh largest insurance market in Europe. The total premium value of the European market is SEK 3,300 billion. If is the largest company in the Nordic region and one of the 15 largest casualty and property insurance companies in Europe.
Stringent risk selection and increased efficiency as well as the favourable claims outcome impacted the risk ratio positivly. At year-end, the cost of major claims was approximately MSEK 300 lower than the normalized level, mainly as a result of the claims trend within the property segment. The risk ratio was reduced to 65,3% (68.5).
Gross premiums written Technical result Combined ratio port and sales methods were refined in order to better match customer requirements and expectations. For example, the company’s direct sales efforts now focus on strategically and geographically selected areas. At the same time, the processes at If ’s customer centers have been simplified and made more uniform. From the viewpoint of customers, the new work methods help to improve quality, availability and efficiency.
Norway is the country where the respondents were least concerned about increased competition and economic fluctuations. Only 13% were concerned about the risk of burglary. The same percentage, 13%, were concerned about economic fluctuations.
Finland, 26% of owners of small-scale businesses and 14% of midsize businesses were concerned about burglary. Moreover, 21% of midsize companies were concerned about low-price competition.
Concept, graphic design and layout: Miltton Oy | Photographers: Horst Neumann and Petri Artturi Asikainen | Translation: The Bugli Company, Tmi Tina Pettersson-
Mäki, Uddevalla Språkkonsult, Olof Sandberg | Photographs: Tapani Kyrki (cover and case, Sampo Group Review), Olli Pulkkanen (cover, Banking and Long-term Savings),