Sampo Group's funding consists of senior debt instruments and subordinated obligations eligible for Solvency Capital.
Sampo plc's subsidiaries conducting P&C and life insurance businesses do not use senior debt as a source of funding. However, they use subordinated obligations as part of their solvency capital in accordance with internal capitalization targets and in compliance with regulatory rules. Maturities and other terms of such liabilities are largely determined by regulatory rules and by rating agencies' criteria.
Group's parent company Sampo plc is issuing senior debt primarily for short-term liquidity management and capital structure optimization purposes. By nature Sampo plc is structurally subordinated to its subsidiaries and the associated company Nordea, and hence it is dependent on the dividend capacity of these core holdings. As a principle the stronger the capital adequacy and the expected profitability and the smaller the volatility of profits at the Group level, the higher the leverage can be in the parent company.
In Sampo plc's debt management the key principles are diversification over markets, maturities and investors. Commercial paper markets in Finland, where Sampo plc is a regular issuer, are relatively large and a significant portion of total debt is covered by short-term domestic CP's. In addition, Sampo plc is issuing from time to time private placements in medium term maturities mostly for domestic retail investors. Loans and revolving credit facilities may also be used as a funding and liquidity management tool.
Rest of the funding is covered mainly by bonds and notes issued under Sampo plc's Euro Medium Term Note Program.
With regard to public bonds and notes, diversification over maturities and investors is sought to mitigate refinancing risk. In terms of currencies, natural choices are EUR and SEK. In terms of rates, floating rate basis is a natural choice because it acts as a natural hedge within the Group. However, Sampo plc is ready for issuance in any structure or currency provided that maturity, investor base and spread targets are met. Derivatives executed with ISDA/CSA counterparties are used to adjust risk profile of issued debt.