Market risks

The expected return of investments is compared to the related risks. Furthermore, the risk exposures are adjusted continuously and their impact on the capital need is assessed regularly. Day-to-day management of these risks, i.e. maintaining them within given limits and authorizations, is the responsibility of the investment units.

Some risks such as interest rate and currency risks are by their nature simultaneously linked to various activities. In order to manage these risks efficiently, Sampo Group companies must have a detailed understanding of the expected cash flows and their variance within each of the company’s activities. In addition, a thorough understanding of how the market values of assets and liabilities may fluctuate at the total balance sheet level under different scenarios is needed. These balance sheet level risks are commonly referred to as Asset and Liability Management (“ALM”) risks.

Macroeconomic and financial market developments affect Sampo Group primarily through the market risk exposures it carries via its insurance company investment portfolios and insurance liabilities and through strategic investments.

To maintain the Asset and Liability Management (ALM) risk within risk appetite, the technical provisions may be matched by investing in fixed income instruments and by using currency and interest rate derivatives. Currently, Sampo Group is economically slightly exposed to a fall in interest rates. This follows from the duration of insurance liabilities being longer than the fixed income asset duration. Currently, Sampo Group's balance sheet position exhibits limited sensitivity to increases in interest rates.

The insurance entities reduce the currency risk by matching technical provisions with investment assets in the corresponding currencies or by using currency derivatives. Balance sheet FX risk at Sampo Group is mainly driven by translation risks, i.e. the non-EUR net assets over liabilities in the subsidiaries and branches.

Investment activities and market risk taking are arranged pro-actively in order to diversify single name risks, except with regards to Nordic banks, where most Sampo Group companies have placed their extra funds in short-term money market assets and cash.

Liquidity risk at Sampo Group is limited. Insurance entities collect premiums mainly in advance and large claims payments are usually known a long time before they fall due. Liquidity risk is reduced by investing in assets that are readily tradable in liquid markets. Sampo Group’s parent company Sampo Plc may also provide liquidity to Group companies.

Fixed income investments form the core of the Sampo Group investment portfolio. Listed equities, real estate and alternative investments supplement investments in fixed income assets.

Regarding fixed income and equity exposures, financial institutions and covered bonds have a material weight in the group-wide portfolios, whereas the role of public sector investments is limited. Most of these assets are issued by Nordic corporates and institutions. Most corporate issuers, although being based in the Nordic countries, are operating at global markets and hence their performance is not as dependent on the Nordic markets.

More up-to-date information on the major risks and uncertainties for Sampo Group in the near-term: Outlookinternal link