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Capital redemption policy
Commonly used life policy without any insurable risk. Policy consists purely of savings.
Catastrophe risk can be seen as an extreme case of premium risk. It is the risk of low frequency, high severity events, such as natural catastrophes. These events lead to significant deviations in actual claims from the total expected claims.
Part of insurance risk transferred to reinsurers.
Direct insurance company that reinsures a part of its direct business to a reinsurer.
Change in fair value reserve
Käyvän arvon rahaston muutos
Change in the fair value reserve includes potential cash flow hedges as well as unrealised profits and losses i.e. changes in the fair value of financial instruments classified as available-for-sale investment assets.
These changes in value are recognized in the income statement when the investments are sold or they expire. The change in the fair value reserve includes also the change in the tax liability related to value changes. Change in the fair value reserve is an important element in analyzing the result, especially in life insurance business.
Change in liabilities for insurance and investment contracts
Vakuutus- ja sijoitussopimusten velkojen muutos
In life insurance business the insurance portfolio is classified as either insurance contracts or investment contracts depending on, whether they carry insurance risk or not. In life insurance business area “investment contracts” comprise only capital redemption policies.
The amount of technical provisions is determined at every balance sheet date. The change in liabilities for insurance and investment contracts is the difference between the value at the balance sheet date in year x and the value a year earlier.
The observed relationship during a specific period between the number of claims arising within a certain category of insurance (a certain insurance portfolio) and the number of insurance policies within the same category (the portfolio). Does not include large claims.
Activities in connection with the investigation, settlement and payment of claims from the time of their occurrence until settlement.
The sum of paid claims and change in provision for claims outstanding. Includes the claims costs for the insured events during the year regardless if they have been paid during the same year or not.
When the insured event occures the benefit paid to the named beneficiaries in insurance contracts or to the unnamed third party.
In P&C insurance claims incurred and operating expenses in relation to premiums earned, expressed as a percentage.
Adherence to laws, regulations, code(s) of conduct and standards of good practice in the industry. Sampo plc's Board of Directors has issued Sampo Group Compliance Principles on 9th November, 2012.
Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss of reputation, resulting from a company failure to comply with laws, regulations and administrative orders applicable to its activities.
Compliance risk is usually a consequence of internal misconduct and hence it can be seen as a part of operational risk.
In general concentration risks arise when the company’s risk exposures are not diversified enough and as a result of this for instance an individual claim or financial market event could threaten the solvency or the financial position of the company.
Direct concentrations can evolve within separate activities – large single name or industry specific insurance or investment exposures – or across the activities when a single name or an industry is contributing widely on profitability and risks of the company through both insurance and investment activities. Concentration risk may materialize also when profitability and capital position react similarly to general economic development or to structural changes in institutional environment in different areas of business. In that case concentration risk can be seen as part of strategic risk.
Operating expenses and claims adjustment expenses divided by premiums earned in P&C insurance company. The ratio is expressed as a percentage.
Counterparty default risk
In case of counterparty risk, final loss depends on the positive mark-to-market value of derivatives or reinsurance recovables at the time of default and on the recovery rate.
Counterparty risk is mitigated by careful selection of counterparties, by diversification of counterparties to prevent risk concentrations and by using collateral techniques, e.g. ISDA Master Agreements backed by Credit Support Annexes. Counterparty risk is one subclass of credit risk.
Credit risk refers to negative impact in the financial results arising from increased probability of, or already occurred defaults of debtors (Issuer risk) or, in case of derivative and/or reinsurance contracts, other counterparties (Counterparty default risk). Further information: Market risks
Currency risk refers to fluctuations in the financial results and capital caused by changes in market values of financial assets and liabilities, as well as by changes in the economic value of insurance liabilities, after currency exchange rates change. Further information: Market risks