Risks

The core of P&C insurance is the transfer of risk from insured clients to the insurer. If P&C collects insurance premiums from a large group of policyholders and commits itself to compensate them if an insured event occurs. For P&C insurance, the result depends on both the underwriting result and the return on investment assets. It is of utmost importance that insurance policies are correctly priced for the underwriting result. However, there is a risk of adverse outcomes due to the inherent uncertainty associated with the insurance business. This uncertainty is managed, for example, by reinsurance. Since a major portion of the insurance premium will be paid to policyholders through future claims, it must be assured that sufficient assets are always available to cover these liabilities.

In life insurance operations, the company offers unit-linked and with-profit savings and pension policies as well as policies covering insurance risks. Insurance premiums received from customers are invested in the financial markets until payments are made to customers in the future. In unit-linked policies the customers carry all the risks of the investments. In with-profit policies the company carries the risks of the investments. These are the main risks facing the life insurance operations. In the long run, for the business to prevail, at least the guaranteed interest rate and bonuses according to the principle of fairness, as well as the shareholders' return requirement, must be earned on the investments. Life insurance operations are also exposed to biometric risks, the most important of which are related to longevity, mortality and disability.

Sampo plc, the holding segment, manages a substantial investment portfolio. The current investment strategy is to invest in shares of Northern European financial companies or to keep investment assets in cash. The Board actively monitors potential investment targets. Market risks related to Sampo plc's investment portfolio are monitored and regularly reported within Sampo Group's risk governance framework.

Although the classification of Sampo Group's risks is based on Solvency II QIS 4 technical specifications, the classification does not entirely follow Solvency II. The main difference occurs from the definition of spread risk, which in the case of Sampo Group is defined by credit risk instead of market risk.