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Capitalization by Internal Measures

Figure "Breakdown of economic capital by business areas and adjusted solvency capital, Sampo Group, 31 Dec 2010" shows the contributions of the different business areas to Sampo Group´s total economic capital as well as the diversification effect included in the calculation of Group´s economic capital. The figure also shows the amount of adjusted solvency capital on Group level.

Sampo Group´s economic capital increased during the year and amounted to EUR 4,281 million in the end of 2010 (EUR 3,783 million in 2009). The increase is mainly due to an increase in market risk driven by a higher equity exposure.

Nordea is included in the calculation of Sampo Group´s economic capital by adding Sampo Group's share of the economic capital reported by Nordea, converted into the 99.5 % confidence level. At year end, the risks arising from Nordea constitute the largest single component in Sampo Group´s economic capital. The correlations between risk types and business areas, and thereby indirectly the amount of diversification, are defined by Sampo on a Sampo Group level.

The amount of adjusted solvency capital on the Group level increased during the year to EUR 8,521 million (EUR 7,076 million in 2009) due to a good investment return and insurance result, and to some extent due to an increase in the liability side adjustment. The increase in the liability side adjustment is mainly due to a lower risk margin, as the QIS5 methodology, where diversification is accounted for between lines of business, is now applied. Thus, the adjusted solvency capital exceeded the economic capital by EUR 4,240 million (EUR 3,294 million in 2009).

Figure "Breakdown of economic capital by risk type, Sampo Group, 31 Dec 2010" presents the split of economic capital by the different risks.

The most significant risk areas for Sampo Group in terms of economic capital in 2010 were credit risk and market risk. The largest change has taken place in the proportion of market risk of the total economic capital. The increase is mainly the result of an increased equity exposure. Another reason is that If P&C have done changes in the risk classification where interest rate risk related to the insurance operations has been moved from insurance risk to market risk, and spread risk has been moved from credit risk to market risk.

The split of economic capital by risk type and the adjusted solvency capital in If P&C and Mandatum Life is depicted in the figures "Breakdown of economic capital by risk type and adjusted solvency capital, If P&C, 31 Dec 2010" and "Breakdown of economic capital by risk type and adjusted solvency capital, Mandatum Life, 31 Dec 2010".

 

In If P&C, economic capital increased to EUR 1,381million (EUR 1,185 million in the end of 2009) meanwhile in Mandatum Life, economic capital increased to EUR 1,119 million (EUR 930 million at the end of 2009). The main reason for the increases is increased market risk due to increased equity exposures. For If P&C the increase in market risk is also due to the move of spread risk from credit risk to market risk. Market risk is now the most significant risk for both If P&C and Mandatum Life. Another change for If P&C is that the interest rate risk related to the insurance operations has been moved from insurance risk to market risk, which explains the decrease in insurance risk now being EUR 583 million (EUR 683 million in the end of 2009). The insurance risk is, however, expected to increase going forward, as the correlations used when calculating the insurance risk most likely has to be increased for regulatory approval of the internal model.

The amount of adjusted solvency capital exceeded the economic capital in both If P&C and Mandatum Life. During the year, the amount of adjusted solvency capital in If P&C increased to EUR 3,670 million (EUR 2,861 million in the end of 2009), whereas in Mandatum Life, adjusted solvency capital increased to EUR 1,589 million (EUR 1,294 million in the end of 2009).

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