Climate strategy

Sampo Group’s strategy focuses on P&C insurance operations across the Nordic countries, the UK, and the Baltics. Sampo Group's purpose statement is ‘Safety and value through understanding risks’, a mission underpinned by Sampo Group’s values of Trust, Integrity, and Excellence. Sampo Group creates value and provides safety to its stakeholders through high-quality insurance solutions, which are developed by understanding risks, including climate risk, and managing them responsibly.

Climate-related risks

For Sampo Group, climate-related physical risks are relevant in the short term and are likely to grow in the medium to long-term In the short term, risks arise in the form of changes in claims  frequencies and/or severity of the climate-related physical risks that are already relevant in the current climate in the Nordics, such as windstorms, floods, heavy rainfall, hail, landslides, erosion, and heatwaves. In the short term, windstorms dominate claims portfolio, but there are also some indications that hail could become more frequent. In the Nordic region, inadequate municipal sewage systems and major new housing developments close to water present potential problems due to the expected increase in precipitation and rising sea levels. In the mid to long term, increased weather-related losses will likely increase the exposure for P&C insurers.

The transition to a low-carbon economy will also result in risks. The risks are associated with changes in the regulatory environment, new technology, changing customer behaviour, and increased climate-related stakeholder concern. Companies that Sampo Group insures may be exposed to litigation under new regulation related to climate change, which can lead to increased claims costs in liability insurance. New battery-driven technology, where batteries are stored overnight in private homes, offices, and production facilities, as well as more solar panels on roofs, environmentally friendly materials for insulation, and more wood used in construction instead of concrete all lead to increased fire hazards. New untested materials, which are rushed to the market due to a surge in demand for green products, can also result in risks that are difficult to foresee and price. Increased concern from stakeholders (e.g. from investors, customers, and reinsurers) can lead to increased costs for due diligence and a need to discontinue business relationships with certain suppliers and clients.

Climate-related opportunities

There are not only risks related to climate change, but also opportunities, such as underwriting opportunities and possibilities to invest in new green technologies. Increased climate-related physical risks could lead to increased demand for insurance products and services providing protection against physical risks and supporting climate change adaptation. Development of new products and services is part of Sampo Group's normal business development and innovation.

Risk management services and loss prevention are already part of Sampo Group’s services to both corporate and private customers. Sampo Group provides large corporate clients with comprehensive risk management services. These services are part of the insurance programme and not a separate service. In turn, private customers who own their house and hold top-level cover insurance policies are offered house assessments. In addition, Sampo Group supports and participates in several research projects in the Nordic region in order to better understand climate-related physical risks and develop preventative measures.

Interaction with strategy and business model

At Sampo Group, resilience to sustainability issues, including climate change, is ensured by continuous adaptation of risk assessment and pricing strategies to account for emerging sustainability factors, thereby ensuring long-term profitability and stability of the business. Adapting strategy and business model according to sustainability issues is critical for Sampo Group in terms of maintaining customer confidence and reducing financial risks, and the Group continuously invests in its people and technology to ensure that it maintains its competitive edge. Combined with careful risk management, this enables Sampo Group to deliver quality customer experience, attractive margins, and strong financial resilience. Resilience towards material impacts, risks, and opportunities is assessed as a part of Sampo Group’s existing processes for sustainability management, risk management, and strategy development.

Sampo Group’s strategic and financial planning considers risks and opportunities associated with climate change. Sampo Group’s capital planning, a forecast of own funds and capital requirements over a three-year planning period, and own risk and solvency assessment (ORSA) processes include scenario analyses, stress tests, sensitivity analyses, and reverse stress tests, including scenarios related to natural catastrophes.

Sampo Group’s risks are being forecasted based on the subsidiaries’ risk and capital forecasts on a consolidated basis. The forecasts of each subsidiary are based on common group-level scenarios given by the parent company, Sampo plc. Sampo plc manages key financial strength metrics for the consolidated Group based on these analyses.

Preparing for a potential increase in weather-related claims and/or more severe damages is part of Sampo Group’s business strategy and risk management in order to prevent negative financial impact. Weather-related claims are monitored to prepare for new situations. Risks associated with weather-related damage are strictly calculated and prices are set according to the risk scenario. Sampo Group also limits its insurance risk and financial impact through a comprehensive reinsurance programme.

Insurance operations

Sampo Group’s underwriting operations are exposed to both physical risks and transition risks. Physical risks are risk factors affecting the financial position and results of Sampo Group. Physical climate-related risks, such as scale and frequency of natural catastrophes, can increase claims costs, meaning that accurate pricing of risks is essential. Catastrophic weather events will be covered through reinsurance programmes. Transition risks, on the other hand, relate to changes in the regulatory environment, the introduction of new technologies, changes in customer behaviour, and increased stakeholder concern for climate and environmental matters, for example.

As part of Sampo Group’s strategic planning processes, external factors impacting Sampo Group’s insurance portfolio are closely followed, including for example windstorms, sea temperature, and flooding. Pricing is typically based on claims data and portfolio results (i.e. trends in claims will influence price). Physical risks can also affect reinsurance prices.

Natural disasters are rare in the Nordic region compared to the rest of the world and reinsurance prices for natural catastrophes low in relation to inward premiums. Currently, insurance policies in the Nordics typically provide extensive protection against natural catastrophes. If the claims frequency is very high for a specific object, Sampo Group can limit the insurance coverage, or increase premium/deductible, for that specific object eventually. Reinsurance is used to manage the aggregated exposure to natural catastrophes.

Given the duration and geographic spread of Sampo Group’s general insurance policies, the risks are predominantly short-term.

Investment operations

Sampo Group’s investments can also be exposed to both physical risks and transition risks, depending on the investment in question. Investments are particularly exposed to physical risks in the form of losses incurred from extreme weather events. The transition to a low-carbon society with potentially increasing environmental and climate regulation, more stringent emission requirements, and changes in market preferences could in turn cause transition risks for the Group’s investments and possible revaluation of assets as operating models in carbon intense sectors change.

The exposure of investments to physical and transition risks is monitored regularly using climate scenario analysis, for example. According to the analysis, Sampo Group’s investments are not exposed to a high level of physical risk based on their sector and geographic region. The transition to a low-carbon society with potentially increasing environmental and climate regulation, more stringent emission requirements, and changes in market preferences could affect the value of Sampo Group’s investments. The identified risks are assessed to have a relatively low likelihood in the short term, compared to other risk types. In a longer time horizon, however, these risks could become material.

Climate scenario analysis

Sampo Group has together with an external vendor analysed the Group’s investment portfolio's exposure to systemic economic and financial climate change risks in four different climate scenarios over the next 40 years. The impact on the insurance results was also analysed based on the impact on macroeconomic variables as well as the potential effect on claims related to natural catastrophes, including the consequences for the pricing of insurance contracts. Results of the climate scenario analysis are presented in more detail in the annually published Sampo Group sustainability statement, which is part of the Board of Directors’ Report.