Business risks

Risks related to business environment and regulation

Changes in economic conditions, societal values, the institutional and physical environment, and technology can affect volumes, margins, costs and capital charges. These interconnected developments can lead to unpredictable changes in customer preferences and demand, as well as evolving regulatory requirements. Business risk arises when the Group fails to recognise or respond adequately to these changes, particularly where competitors adapt more effectively.

Business risks are not subject to a separate regulatory capital charge, although they may be a material source of earnings volatility.

Currently the themes of sustainable business practices in general and especially the issues related to environment, society and governance, are changing the preferences and values of different stakeholders and, as a result, competitive environment is also changing in different ways.

Sustainability risks

Sampo Group has a sustainability programme, which guides group level sustainability work. The programme is built around three strategic sustainability themes: Business management and practices, People and communities, and Climate and environment. Under each theme, the most material sustainability topics have been identified. These topics are closely linked to Sampo Group’s strategy, business operations, and risk management and are considered important by the Group’s diverse stakeholders.

Business management and practices

The business management and practices theme focuses on topics that are fundamental to Sampo Group’s operations. These include good corporate governance, responsible insurance and investment practices, and supply chain management.

Good governance at Sampo Group comprises effective policies, management practices, and training that ensure compliance with laws, regulations, and generally accepted principles, particularly in relation to anti-corruption and bribery, anti-money laundering, and counter-terrorist financing. It also includes comprehensive information security and cybersecurity governance systems, data privacy measures, and effective whistleblowing and grievance procedures.

Sustainable insurance operations are essential for meeting the evolving needs of all customers and for mitigating potential adverse impacts on the Group’s reputation. Accordingly, Sampo Group aims to take ESG considerations into account in product and service development and insurance underwriting. This approach helps prevent association with business activities that conflict with the company’s sustainability related policies and supports the offering of products and services aligned with customers’ needs and preferences. For example, Sampo Group integrates ESG considerations, such as expectations for corporate customers to respect international norms and standards (e.g. by the UN Global Compact) into underwriting practices, and embeds such considerations into underwriting principles and/or other relevant policies. Sampo Group also provides loss prevention services, handles claims sustainably, and develops products and services in accordance with relevant legal requirements.

Responsible investment management and operations are vital for managing investment-related risks, and in mitigating potential adverse impacts on the Group's reputation. ESG considerations are taken into account when assessing the security, quality, liquidity, and profitability of investments. Investment opportunities are thoroughly analysed before any investments are made, with ESG considerations evaluated alongside other factors affecting the risk-return ratio. Depending on the asset class, Sampo Group applies various ESG strategies to manage investment risks effectively. These strategies include ESG integration through rating, sector-based screening, norm-based screening, and engagement with investee companies.

Sampo Group places emphasis on sustainability when working with suppliers. As a major procurer of goods and services, especially in claims handling, the company has an impact on the economy, the environment, and society. Supply chains are a critical component of the sustainability of Sampo Group’s products and services, and poor management of sustainability issues can pose reputational and operational risks. Therefore, ESG considerations are integrated into supply chain management through measures such as supplier codes of conduct, additional contractual requirements for specific suppliers (e.g. based on ESG risks, sector, size, geography, business relevance), supply chain-related targets, and supplier risk assessments (e.g. audits, questionnaires). Sampo Group is also committed to encouraging and supporting suppliers and business partners adopting more sustainable practices.

People and communities

The people and communities theme compasses factors related to human rights and labour practices; diversity, equity, and inclusion; health, safety, and wellbeing; competence development; customer needs and preferences; and sustainable sales and marketing practices.

Sampo Group is committed to providing customers with the best service in all situations. Skilled and motivated employees are a key success factor. Losing talent or being perceived as an unattractive employer would pose large risks for the businesses. Sampo Group strives to ensure a healthy and supportive work environment, not only because it is required by law but also because it forms the foundation for sustainable business performance.

Diversity and inclusion are key focus areas, and Sampo Group is committed to fostering a non-discriminatory, open, and respectful work environment where everyone is treated fairly and equally. Risks related to these themes are managed through internal policies and governance structures, organisational development programmes, and by offering employees training, engaging career opportunities, and attractive remuneration packages.

A responsible product and service offering requires attention to the risks such as inappropriate customer advice and product sales, errors in claims handling and complaint processes, and a lack of clarity regarding conditions, prices, and fees. Sales and marketing practices focus on meeting customer needs and providing the customer the information necessary for well-informed decisions about insurance coverage. Sampo Group manages these risks through internal policies and governance structures, as well as employees training.

Climate and environment

The climate and environment theme includes topics, such as climate change, circular economy and resource use, and biodiversity. Climate change and environmental issues can impact Sampo Group’s business on short, medium, and long term. Climate-related risks can be categorised into physical risks and transition risks.

The financial position and performance of Sampo Group’s insurance operations are especially affected by physical risks. Effects on the financial position related to extreme weather events and natural disasters are considered in internal risk models, for instance through the consideration of trends in related insurance claims. Climate-related risks are also managed effectively with reinsurance programmes and price assessments. As climate change may increase the frequency and/or severity of physical risks, Sampo Group conducts sensitivity analyses using scenarios that assume increased severity of natural catastrophes. The Group also supports its corporate and private customers in managing climate-related risks. For example, extreme weather events can damage property, cause crop failures and disrupt business operations. Loss prevention is an essential part of insurance services, helping customers reduce economic losses and mitigate the impacts of climate change.

Sampo Group’s investments may be exposed to both physical risks and transition risks, depending on the nature of the investment. Physical risks primarily arise from losses due to extreme weather events. Transition risks, on the other hand, may result from the shift to a low-carbon economy, including stricter environmental regulations, tighter emission requirements, and changing market preferences. These developments could lead to asset revaluations, particularly in carbon intensive sectors. To manage these risks investment opportunities are carefully analysed before any investment decisions are made. Climate-related risks are considered alongside other factors influencing the risk return ratio of each investment. Sampo Group employs several methods including analysis of financed emissions, sector-based screening, ESG integration using ratings, monitoring the geographical distribution of investments, and engagement with investee companies.