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Climate-related Risks and Opportunities

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. Sampo plc is currently in the process of developing climate risk scenarios that would forecast long-term risks and capital needs driven by climate change.

Climate risk scenarios are also used in investment operations. The first climate impact assessment of the Group’s investments was conducted in 2019 by an external service provider. The Group companies’ investment units are currently investigating how to incorporate scenario analysis into investment processes.

If

Sustainability is an integral part of If’s core business and integrated into the company’s strategy. If’s strategy framework, One If, consists of four strategic foundations: Customer, Risk, People & Culture, and Sustainability. Further, the strategic foundation Sustainability is built on three commitments: Commitment to customers, Commitment to employees, and Commitment to society.

Climate-related risks

For If, 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 Nordic climate, such as windstorms, floods, heavy rainfall, landslides, erosion, and heatwaves. In the short-term, windstorms dominate If’s 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 If and for other P&C insurers.

Climate-related opportunities

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. Risk management services are part of the insurance programme and not a separate service. If offers advanced risk management services for major corporate clients with business operations around the world. If's risk engineers conduct on-site risk assessments and provide recommendations on concrete and cost-effective preventative measures. If also has services for SMEs, providing clients with loss prevention services for different kinds of damage. If, in cooperation with Anticimex, offers house assessments to private customers who own their house and hold a house insurance policy with the most extensive cover. 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.

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.

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 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 a number of 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.

More information is available in If’s Sustainability Report.

Topdanmark

Topdanmark supports the Paris Climate Agreement's target of a maximum temperature rise of 1.5 degrees by 2050, and the Danish government's target of a 70 per cent reduction of GHG emissions by 2030. Against this background, Topdanmark strives to further integrate climate and environmental risks and opportunities into the company’s business strategy, investment activities, and business operations in general.

Climate-related risks

In the medium term, extreme weather events like storms and cloudbursts are expected to increase. Topdanmark monitors the number of weather-related claims and focuses on loss prevention services. Topdanmark may face reputational risk if it fails to respond accurately during a crisis. Topdanmark has prepared a detailed emergency plan for disasters to ensure that prompt, correct, and targeted action is taken if the number of claims increases above normal due to major weather events.

Topdanmark has a goal of investing 20 per cent of the pension provisions in the transition to a low carbon economy by 2030. In the long-term, the goal could impact Topdanmark’s financial performance negatively, if the supply of suitable companies to invest in is limited and asset values are inflated. The perceived risk of this scenario materialising is gradually reduced as more and more companies are committing to a net zero future.

Climate-related opportunities

Development and implementation of new products and services is part of Topdanmark's normal business development and innovation strategy. Topdanmark follows trends and development closely, and endeavours to be ready to support and insure new sustainable solutions which the company’s customers might wish to implement or use, and which will reduce the environmental footprint.

Identified climate-related opportunities include insurance products and services that mitigate weather-related events. This is seen, for example, in an increased demand for Topdanmark’s crop insurance, which provides compensation for loss of crop yield caused by extreme weather. Topdanmark also works with loss prevention services by advising customers and collaborating on climate-proofing buildings.

A change in customer behaviour can also be an opportunity. Topdanmark is committed to provide their customers with products and services that fit their values. Topdanmark expects a continued shift from traditional investment products to those where there is a larger emphasis on sustainability. An example of this strategy is the new insurance product Formålspension (Purpose Pension), where the customer can choose between four specific purposes in which the customer’s pension funds must be invested: green transformation, technology, Danish investments, and global investments. Green transformation is the most popular among the four purposes with a 40 per cent share of investments.

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.

In addition, Topdanmark uses scenario analysis from the 2° Investing initiative to analyse climate-related risks related to the company’s listed equity portfolio. The analysis includes all Topdanmark’s listed equity investments and is based on a range of scenarios including the sustainable development scenario where the temperature increase is limited to 1.75 –2°C.

More information is available in Topdanmark’s CDP report.

Hastings

At Hastings, climate related risks are currently identified on a high level, and the company will complete a detailed risk assessment during 2022.

Hastings reviews its sustainability strategy on an annual basis taking into account carbon footprint, emissions, environmental impacts, and related risks. As a part of the review, Hastings investigates signing up to the Science-Based Target initiative (SBTi) in 2022 and setting targets and risks analysis in line with the Paris Climate Agreement. In addition, the company will consider scenario planning as part of detailed risk assessment and business modelling during 2022.

Mandatum

Climate risk in life insurance

Mandatum Life Insurance Company (Mandatum Life) operates in the life insurance business which means that the short- and medium-term effects of climate-related risks are not relevant due to the nature of the life insurance contracts. Climate change is not likely to have significant effects on the insurance portfolio even in a time period as long as the insurance liabilities, and hence the insurance portfolio is not significantly exposed to climate-related risks. Nevertheless, the impacts of climate change in the longer term are unknown and cannot be completely disregarded regarding insurance liabilities.

Climate risk in investments

Mandatum Asset Management (MAM) manages Mandatum’s proprietary assets as well as client assets, which are both exposed to climate-related risks. In Mandatum’s portfolio, transition risk is more relevant than physical climate risk. However, sustainability risks and especially climate risk are not considered significant in Mandatum’s asset portfolio due to, for example, the geographical and sector allocation of the portfolio.

Mandatum’s investment strategy does not aim to actively seek climate-related investment opportunities but instead sound investment opportunities which have a suitable risk-return profile. These opportunities include climate-related opportunities.

Climate transition and integration of climate-related risks into the investment process is one of the focus areas in portfolio management of the company assets as well as client assets. In addition, wealth management clients are offered specific investment solutions that promote climate transition and reduce the carbon intensity of investments.

Updated 10 Feb 2022