Sampo Group

Annual Report 2011

Kari Stadigh

‘Our leading position in our main market areas and our strong capital base provide a good foundation for successful operations during 2012.’

Sampo Group
2011 in Figures

Group CEO's Review

2011 – A stormy year

The environment of the banking and insurance sector should be stable and any changes that might occur should be easy to foresee. However, in 2011 this was not the case: instead, economic turbulence and changing regulation seriously altered the operational environment.

The true nature and size of the sovereign debt crisis in Europe was brought to the public attention at the beginning of the year. This combined with the inability of politicians in Southern Europe to restore confidence, gave rise to general uncertainty in the investment markets. As a result, stock prices fell and the eurozone interest rate declined to a record low.

In addition to the volatility in the investment markets, the financial sector was heavily engaged with new regulation: Solvency II and Basel III advanced. EU made proposals as well concerning the directive on deposit-guarantee schemes, collective guarantee system and gender-neutral pricing. Furthermore, a financial transaction tax was publicly debated. Banks were stress tested, and also country-specific capital requirement initiatives were published.

In addition to the economic turbulence and increased regulation, forces of nature put the foundations of our risk selection to the test: the winter at the beginning of the year was extremely harsh with heavy snow fall. In the summer, heavy rainfall caused flooding, particularly in Denmark. At the end of the year, Norway, Sweden and Finland suffered an unusually strong winter storm.

In spite of the difficult operational environment, our results were good; in some areas even excellent. Our P&C insurance operations withstood the turbulence well. Insurance technical result of our subsidiary If P&C was good and once again we clearly beat our combined ratio target (below 95 per cent) as the combined ratio for the whole year was at an excellent 92 per cent. In addition, the business volume improved noticeably, as the premium income rose to EUR 4.2 billion. When calculated using fixed exchange rates, the annual premium income increased more than ever during the time If P&C has been fully-owned by Sampo.

Furthermore, the overall positive mark-to-market investment result can be regarded as a good achievement given the prevailing circumstances. In May 2011, we increased our holding in Denmark's second largest P&C insurer, Topdanmark. Our share of the ownership now stands at over 20 per cent, and Topdanmark is now booked as an associated company.

Share of the net profit from Nordea increased
to EUR 534 million

The management of Nordea, our associated company, responded quickly to the changes in the operational environment by initiating measures to safeguard the bank's profitability. One of the positive developments was increased revenues, as the bank's income in 2011 was greater than ever before in its history.

Nordea has shown that through a combination of its expertise and strong position, it can also successfully operate in the eye of the storm. This in spite of the fact that the operational environment for banks has, in many respects, developed negatively: low interest rates reduce the deposit margins, regulation increases capital requirements and a debate about a financial transaction tax is underway. The clearest proof of Nordea's stability is that Nordea is one of the few AA-rated banks in Europe.

During the past year, Sampo's share of Nordea's net profit was EUR 534 million compared to EUR 523 million a year earlier. In spring 2011, Sampo received EUR 250 million as dividends from Nordea.

The operational environment for life insurance in Finland was if possible even more complicated: while there is a growing need for supplementary pensions, unfortunately the general economic situation and taxation legislation do not provide impetus for them. The difficult investment environment was also reflected in the sales of asset management services. In spite of this, Mandatum Life's profit before taxes reached EUR 137 million compared to EUR 142 million a year earlier.

Mandatum Life's premium income decreased from the previous year to EUR 849 million. Regardless of this, it still was the second largest premium income in the company's history. The sales of life insurance products through Sampo Bank's distribution channel succeeded especially well.

Geographical diversification and strong capitalization
as core strengths

If P&C and Nordea are headquartered in Stockholm, Sweden and If P&C's largest market is in Norway. Our diversification across the Nordic countries is a great benefit in the current economic situation: the economies of Sweden and Norway in particular are developing far better than the European economy in general. On the other hand, the development of the economies of Finland and Denmark is closer to the European average.

In these circumstances, I believe that Sampo’s near future rests on a solid ground. Our leading position in our main market areas and our strong capital base provide a good foundation for successful operations during 2012.

Kari Stadigh
Group CEO and President

Sampo Group
2011 in Figures