Climate strategy

Sampo Group supports the transformation to a low-carbon society and is committed to setting science-based climate targets, which are in line with what the latest climate science deems necessary to meet the goals of the Paris Climate Agreement, limiting global warming to well below 2°C, preferable 1.5°C.

Sampo Group’s strategy is to focus on P&C insurance, investing in and developing its P&C insurance subsidiaries 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.

Sampo Group’s risks are being forecasted based on the subsidiaries and associated companies’ 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.

Climate-related risks

For Sampo Group, climate-related physical risks are relevant in the short term and are likely to grow in the mid 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, 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 stakeholder concern. Companies that Sampo Group insures may be exposed to litigation under new regulation related to climate change, leading 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 also 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 are already part of Sampo Group’s services to both corporate and private customers.   

Company-level information

Impact on business, strategy, and financial planning

If’s yearly planning cycle begins with a strategy revision based on market outlook, trends, and risks. The strategic direction, together with planning assumptions and management directives, is translated into focus areas and indicative financial targets with input from risk heat maps and risk-based targets. The indicative targets are the basis for the detailed three-year financial plan.

As part of the planning process, external factors impacting If’s 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 could affect reinsurance prices. However, 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, If 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.

If measures the exposure of its equity and fixed income investments to physical and transition risks annually. According to the analysis, If’s investments are not exposed to a high level of physical risk, either chronic or acute, 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 If’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.  

Increased climate-related physical risks can also lead to increased demand for loss prevention services. If already offers major corporate clients comprehensive risk management services. The risk management services are part of the insurance programme and are not a separate service.  If, in cooperation with Anticimex, offers house assessments to private customers who own their house and hold top-level cover insurance policies. If also supports and participates in a number of research projects in the Nordic region in order to better understand climate-related physical risks and develop preventative measures. 

Scenario analysis

If’s risks are measured, aggregated, analysed, and reported regularly for the purpose of performing an overall assessment of risk and capital. The outcome and the follow-up of risk reporting procedures are documented as part of the quarterly Own Risk and Solvency Assessment (ORSA) process. If’s capital planning model is a tool used in the ORSA process, which forecasts own funds and capital requirements over a three-year planning period. The assessment also includes scenario analyses, stress tests, sensitivity analyses, and reverse stress tests, including scenarios relating to natural catastrophes. In addition to quantification of If’s main risk categories, a qualitative assessment of If’s key risks over the planning period is conducted.

If has started the work to analyse climate change risks and embed the analysis in the Risk Management System, but further work is needed to define, understand, and quantify the risks so that more robust conclusions can be drawn. In terms of scenario analysis, If has so far qualitatively assessed the impact of reasonable and relevant outcomes in three different climate change risk scenarios on i) investments, ii) underwriting and business strategy, and iii) solvency and capital. The three risk scenarios used are the Net Zero Orderly Transition Pathway, Net Zero Disorderly Transition Pathway, and Failed Transition Pathway. 

Impact on business, strategy, and financial planning

In the medium term, extreme weather events like storms and cloudbursts are expected to increase. Preparing for a potential increase in weather-related claims and/or more severe damages is part of Topdanmark’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. Topdanmark is continuously testing several acute physical natural catastrophe scenarios, including atmospheric events, mapping a range of perils and regions. The results provide the basis for Topdanmark’s risk management, monitoring limits and subsequent business decisions. Topdanmark also limits its insurance risk and financial impact through a comprehensive reinsurance programme.

Scenario analysis

Topdanmark uses an internal risk model, which also includes extreme weather conditions. The model provides the information and input required for the Board of Directors, Executive Board, and managers both as far as risk management and opportunities are concerned – on current as well as future scenarios. The model is partly based on historical data, but trends in the number of extreme weather events and claim sizes are also incorporated into assessments. The internal model is subject to scenario analyses and stress tests. The scenarios are based on different RCP scenarios and different time periods up to 100 years in the future.

Topdanmark will use scenario analysis to monitor and analyse emissions from investments against a scenario that limits temperature rise to 1.5 degrees.

Impact on business, strategy, and financial planning

Hastings considers the environmental and climate impacts of its operations and focuses on reducing GHG emissions from all scopes. Hastings’ ESG strategy evolves as progress is made across its four ESG focus areas (Operating Responsibly; Valuing Colleagues and Customers; Supporting Communities; and Reducing Environmental Impact) taking into consideration developments in legislation and recommendations of non-governmental organisations (NGOs). 

Hastings’ financial planning considers short, medium, and long-term risks associated with climate change and other sustainability risks. Given the duration and geographic spread of Hastings’ general insurance policies, the risks are predominantly short-term. Negative impacts from climate change (increased extreme weather events, flooding, etc.) may increase claims frequency, with Hastings being able to price for this before it is a material concern, and catastrophic weather events will be covered through reinsurance programmes.

In relation to long-term risks, the change in consumer demand to electric vehicles is being addressed as Hastings’ underwriting capacity is developed. Whilst this may increase claims severity, the risk will not impact Hastings’ ability to price for this accordingly.