Climate strategy

Sampo Group’s strategy focuses on property and casualty (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 the 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 has a transition plan for climate change mitigation, which has been approved by the Group’s management and the Board of Directors. The Group’s transition plan is based on its science-based targets (SBTs) and related decarbonisation levers for own operations, investments, and suppliers, as well as the processes and resources needed to implement these. Sampo Group has aligned its transition plan with its overall strategy and business model, particularly through its investment and claims handling operations. In the coming years, the Group will continue to develop the transition plan, for example by investigating decarbonisation efforts related to underwriting activities. As a transition enabler, Sampo Group can reduce greenhouse gas (GHG) emissions from its value chain especially by engaging with corporate customers, investee companies, and suppliers and encouraging them to set SBTs.

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. The main perils to which Sampo Group is exposed to are Nordic windstorms, and there are also some indications that hail and floods may become more prevalent. 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, such as 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 can also be some climate-related opportunities in areas such as loss prevention and risk management. Development of new products and services is part of Sampo Group's normal business development and innovation, and risk management services as well as loss prevention are already part of the Group’s services to both corporate and private customers. Sampo Group provides large corporate customers with risk management services, which are part of the insurance programme. Private customers who own their house and hold top-level cover insurance policies are offered house assessments, and for SME customers the Group offers building checks. In addition, Sampo Group supports and participates in several research projects in the Nordic region 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 the 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, among others, as a part of Sampo Group’s 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 related to climate change. Physical risks arise from the direct impacts of climate change, such as more frequent or severe weather events, while transition risks relate to the shift towards a low‑carbon economy.

Natural catastrophe risk contributes to Sampo Group’s gross underwriting risk. However, this risk is largely mitigated through appropriate pricing, diversification across the portfolio, and the use of reinsurance, which reduces its contribution to net risk. Physical climate-related risks may increase claims costs over time, making accurate and responsive pricing of insurance risks essential. Severe or catastrophic weather events are covered through dedicated reinsurance programmes.

The transition to a low‑carbon economy gives rise to risks stemming from changes in regulation, the development and adoption of new technologies, evolving customer behaviour, and heightened stakeholder expectations. Insured companies may become exposed to litigation under new or stricter climate‑related regulations, potentially leading to higher claims costs in liability insurance. Technological changes and changes in construction materials associated with the transition may also introduce new sources of risk. These developments may, in some cases, increase fire or property damage risks.

As part of Sampo Group’s strategic planning processes, external factors affecting the insurance portfolio are closely monitored. These include, for example, developments related to windstorms, sea temperature, and flooding. Pricing decisions are typically based on historical claims data and portfolio performance (i.e. observed trends in claims frequency or severity are reflected in pricing). Physical climate‑related risks may also influence the cost and availability of reinsurance.

Compared to many other regions globally, natural disasters are relatively rare in the Nordic region, and reinsurance prices for natural catastrophe cover are generally low in relation to inward premiums. Currently, insurance policies in the Nordics typically provide extensive protection against natural catastrophes. Given the relatively short duration of Sampo Group’s general insurance contracts and the geographic diversification of the portfolio, climate‑related risks to underwriting operations are predominantly short‑term in nature and can be actively managed through pricing, underwriting practices, and risk transfer arrangements. Reinsurance is used to manage aggregated exposure to natural catastrophes across the portfolio.

Investment operations

Sampo Group’s investments can be exposed to both physical risks and transition risks, depending on the investment in question. Investments can be 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 the 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 service provider 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.