Sampo Group

Annual Report 2011
Capitalization
Sensitivity Analysis of the Capital Position

Internal Capitalization Assessment

Figure 'Breakdown of economic capital by business areas and adjusted solvency capital, Sampo Group, 31 December 2011' shows the contributions of the different business areas to Sampo Group's total economic capital as well as the diversification effect included in the calculation of Group´s economic capital. The figure also shows the amount of adjusted solvency capital on Group level.

Sampo Group's economic capital increased during the year and amounted to EUR 4,374 million at the end of 2011 (EUR 4,281 million in 2010).

Nordea is included in the calculation of Sampo Group's economic capital by adding Sampo Group’s share of the economic capital reported by Nordea, converted into the 99.5 % confidence level. At year end, the risks arising from Nordea constitute the largest single component in Sampo Group's economic capital. The correlations between risk types and business areas, and thereby indirectly the amount of diversification, are defined by Sampo plc on a Sampo Group level.

The amount of adjusted solvency capital on the Group level decreased during the year to EUR 7,262 million (EUR 8,521 million in 2010) due to a decrease in the liability side adjustment and fair value reserve before taxes. Thus, the adjusted solvency capital exceeded the economic capital by EUR 2,888 million (EUR 4,240 million in 2010).

Figure 'Breakdown of economic capital by risk type, Sampo Group, 31 December 2011' presents the split of economic capital by the different risks.

The most significant risk areas for Sampo Group in terms of economic capital in 2011 were credit risk and market risk. Only minor changes occurred during the year. Insurance risk increased by EUR 115 million and market risk decreased by EUR 162 million.

The split of economic capital by risk type and the adjusted solvency capital in If P&C and Mandatum Life is depicted in the figures 'Breakdown of economic capital by risk type and adjusted solvency capital, If P&C and Mandatum Life, 31 December 2011'.

 

In If P&C, economic capital increased to EUR 1,460 million (EUR 1,381 million at the end of 2010) meanwhile in Mandatum Life, economic capital decreased to EUR 1,046 million (EUR 1,119 million at the end of 2010).

During 2011 If P&C’s holding in Topdanmark has increased and the Danish insurance company is now an associated company. Therefore it is no longer treated as an equity exposure. Instead If P&C’s share of Topdanmark’s regulatory solvency requirement of EUR 98 million as at the end of year 2011 is included in the economic capital.

Market risk is still the most significant risk for both If P&C and Mandatum Life although it has decreased in both companies compared to the year 2010. Insurance risk increased in If P&C during the year to EUR 677 million (EUR 583 million at the end of 2010) and in Mandatum Life to EUR 345 million (EUR 305 million at the end of 2010).

Adjusted solvency capital is an internal measure of available capital. Adjusted solvency capital is calculated by making an adjustment to the regulatory solvency capital. The adjustment is the difference between carrying amount and market value of technical provisions, where the market value of technical provisions is the discounted value of future cash flows plus a risk margin.

At Sampo Group level the amount of adjusted solvency capital exceeded the economic capital. The amount of adjusted solvency capital exceeded the economic capital in If P&C whereas in Mandatum Life the adjusted solvency capital was below the economic capital. During the year, the amount of adjusted solvency capital in If P&C decreased to EUR 2,854 million (EUR 3,670 million in the end of 2010), and in Mandatum Life, adjusted solvency capital decreased to EUR 925 million (EUR 1,589 million in the end of 2010). In both companies paid dividends were affecting capitalization together with decreases in fair value reserves and interest rate levels.

Capitalization
Sensitivity Analysis of the Capital Position