Risks
Sampo Group has two business areas: P&C insurance (If P&C) and life insurance (Mandatum Life), wholly owned by the holding company (Sampo plc). In addition to the insurance subsidiaries, Sampo plc is also a major shareholder in Nordea AB (publ).
Sampo plc as a holding company does not have any own business operations. Sampo plc sets the main financial and capitalization targets for the subsidiaries and defines the risk management principles. The subsidiaries independently organise their risk management according to these principles, taking into account the special characteristics that arise from the company specific earnings logic and risks.
As a pan-Nordic insurance group If P&C underwrites policies that cover various risks of individuals and corporations on a geographically diverse area. If P&C is hence exposed to various risks, which are selected carefully and priced reflecting the risks. Reinsurance is used to handle low frequency, but high impact events. A critical success factor is also the company's capability to maximise investment returns while taking all risks as well as the features of insurance liabilities, solvency, regulatory asset coverage rules and rating requirements into account.
Mandatum Life mainly operates in Finland and offers life and pension policies as well as policies covering insurance risks. Profitability of life insurance is dependent on the investment result, insurance risk result and expense result. In Mandatum Life, investment result is the margin between investment return from assets covering other than unit-linked reserves and the cost of guaranteed rate and bonuses of with-profit insurance policies. Insurance risk result is the margin between actual claims and the amount of claims assumed in pricing. Expense result is the expense charges from policies less the actual expenses.
Investment result is the main source of profitability in life insurance. The basis for Mandatum Life's investment operations is the structure of technical reserves and solvency. The life insurance policies usually have long maturity and the predictability of the cash flows allows the company to aim for returns exceeding the risk-free rate. This will naturally lead to higher volatility of investment returns in the short-term, which is considered in the company's internal capitalisation.
In addition to the risks discussed above, Sampo Group is exposed to operational risks and business risks, such as failures in internal processes or changes in the economic environment. These risks are inherent in all business areas. Sampo Group's main risks are illustrated in the figure. The classification of risks is based on the major risk factors that affect Sampo Group. Moreover, certain risks such as ALM risk (Asset and Liability Management) related to the value and earnings potential of the whole balance sheet, as well as concentration risk and reputation risk are dependent simultaneously on various risk factors.
