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Liquidity Risks

Liquidity risk is the risk that insurance undertakings are unable to conduct their regular business activities in accordance with the defined strategy, or in extreme cases, are unable to settle their financial obligations when they fall due. Major sources of liquidity risk in Sampo Group are market illiquidity risk of investments, non-renewal of insurance policies and refinancing risk of debt. Also the availability and price of refinance and financial derivatives affect the company´s ability to conduct regular business.

Liquidity risk is relatively immaterial in Sampo Group's businesses. The market illiquidity risk is rather limited because a major share of the investment assets are in readily marketable investment-grade securities and in short-term money market instruments.

In P&C insurance, liquidity risk is limited because premiums are collected in advance and large claims payments are usually known a long time before they fall due. In P&C insurance some pressure on the liquidity situation could arise from a large scale of policies not being renewed. It is however highly unlikely that the number of non-renewals could reach such a magnitude that the readily marketable assets will not be sufficient to prevent any illiquidity issues. In life insurance, a large change in surrender rates could influence the liquidity situation. However, only a relatively small part of insurance policies can be surrendered and it is therefore possible to forecast short-term cash flows related to claims payments with a very high accuracy.

Sampo Group has a relatively low amount of financial liabilities and thus the Group's respective refinancing risk is relatively minor.

Sampo Group companies have business relationships with several creditworthy counterparties which mitigates the risk that Sampo Group will not be able to enter into reinsurance or derivative transactions when needed.

In Sampo Group, liquidity risks are managed by the legal entities, which are responsible for liquidity planning. Liquidity risk is monitored based on the expected cash flows resulting from assets, liabilities and other business. At year-end, the liquidity position in each legal entity was in accordance with the internal requirements.

The maturities of technical provisions and financial assets and liabilities are presented in table "Cash flows according to contractual maturity, P&C insurance, Life insurance and Holding, 31 Dec 2010". The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.

Cash flows according to contractual maturity, P&C insurance, Life insurance and Holding, 31 Dec 2010

  Carrying amount total Cash flows
EURm

 

Carrying amount total

Carrying amount without contractual maturity

Carrying amount with contractual maturity

2011 2012
2013
2014
2015
2016-2025
2026-

P&C insurance

 

                 

Financial assets

12,781

2,126

10,655

1,762

1,940

2,033

2,438

1,583

989 31

of which interest rate swaps

70
70 4 3 0 0 0 1

Financial liabilities

1,033

0

1,033

-228 -13 -78 -7 -157

of which interest rate swaps

0
Net technical provisions

8,829

8,829

-2,739

-855 -623 -514 -445 −2,609

−1,995

                     
Life insurance
                   
Financial assets

5,902

2,357

3,545

1,178

466 562 727 249 589 159

of which interest rate swaps

32 0 32 26 7 4 0 0 0 0
Financial liabilities
193 0 193 -30 -5 -105 0 0 0 0

of which interest rate swaps

0
0 0 0 0 0 0 0 0 0
Net technical provisions

4,262

4,262

-566 -490 -444 -409 -375

-2,585

-2,161

                     
Holding
                   
Financial assets 803 36 767 583 34 106 1 16 0 0

of which interest rate swaps

36 0 36 28 28 0 0 0 0 0
Financial liabilities

1,741

0

1,741

-853 -817 -6 -153 -25 0 0

of which interest rate swaps

0 0 0 0 0 0 0 0 0

In the table, financial assets and liabilities are divided into contracts that have an exact contractual maturity profile, and other contracts. Only the carrying amount is shown for the other contracts. In addition, the table shows expected cash flows for net technical provisions, which by nature, are associated with a certain degree of uncertainty.

In the investment assets of life insurance, the investments of the Baltic subsidiary are included in the carrying amount but excluded from the cash flows.

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