Print

Investment Portfolio Risks

Investments are managed according to the subsidiaries' investment policies. The most significant risks are equity risk, interest rate risk, credit spread risk and currency risks. Market risks also arise from real estate, private equity and hedge fund investments.

Sampo plc's Chief Investment Officer is responsible for all investments within the limitations of the companies' Investment Policies. The insurance subsidiaries and the parent company have a common Group-wide infrastructure for investment management as well as performance and risk reporting.

Market risk control is separated from portfolio management activities. Middle-office functions measure risks and performance and control limits on a daily basis. Market risks and limits are controlled by the ICC in If P&C and ALCO in Mandatum Life at least on a monthly basis. These committees are responsible for the control of investment activities within the respective legal entity. The aggregated market risks and concentrations on Sampo Group level are controlled by the Group's Audit Committee at least quarterly.

Sampo Group has a thorough understanding of Nordic markets and issuers and consequently Sampo Group's direct investments are mainly made into Nordic securities. When investing in non-Nordic securities, fund investments are mainly used. These funds are primarily used as a tool in tactical asset allocation when seeking return and secondarily in order to increase diversification.

Asset Allocations and Investment Returns

The total amount of Sampo Group´s investment assets in 2010 was EUR 18,301 million (16,593 million in 2009). The composition of the investment portfolios in If P&C, Mandatum Life and Sampo plc at year end and in comparison to year end 2009 is shown in figure "Development of investment portfolios, If P&C, Mandatum Life and Sampo plc, 31 Dec 2010 and 31 December 2009".

The composition of the investment portfolios is reported on the basis of fair values of investments. These fair values are determined either on the basis of direct market quotes or by using various valuation models. More information on the valuation methods of the investment assets is presented in note 17 in the financial statements.

At year-end, the strong solvency position of If P&C and Mandatum Life allowed the companies to aim for higher expected returns by deviating from the portfolio replicating the cash flows of technical provisions.

Sampo plc's own market risks are limited. Interest rate risk arising from the company's gross debt and the liquidity reserve invested into short-term money market securities is the company's most significant market risk together with the refinancing risk related to gross debt. Most of Sampo plc's debt is tied to short-term reference rates. This mitigates the Group-level interest rate risk because, while lower interest rates would reduce subsidiaries' investment returns in the long-term, the interest expense in Sampo plc would be lower.

Mandatum Life and If P&C have somewhat differing investment policies, because Mandatum Life is able to aim for higher returns than If P&C due to the different structures of technical provisions. Figures "Annual investment returns at fair values, If P&C, 2001-2010" and "Annual investment returns at fair values, Mandatum Life, 2001-2010" present the historical development of investment returns. Mandatum Life has had higher average return with higher volatility.

 

The total average investment return of the Group's combined investment portfolios (including Sampo plc) in 2010 was 8.7 per cent (13.5 per cent in 2009).

In order to examine potential concentrations and risks on a more detailed level a more comprehensive breakdown of the composition of investment assets is shown in the tables "Investment allocation according to asset classes, sectors and fixed income investments according to rating, If P&C, 31 Dec 2010", "Investment allocation according to asset classes, sectors and fixed income investments according to rating, Mandatum Life, 31 Dec 2010" and "Investment allocation according to asset classes, sectors and fixed income investments according to rating, Sampo Group, 31 Dec 2010". Due to differences in the treatment of derivatives, the figures in these tables are not fully comparable with other tables in this annual report.

Investment allocation according to asset classes, sectors and fixed income investments according to rating, If P&C, 31 Dec 2010

EURm

AAA

AA+ - AA-

A+
-
A-

BBB+ - BBB-

BB+ -
C

       

D

Not rated

Fixed income total

Equi-
ties

Other

Deriva-
tives (counter-
party risk)

Total

Change 31 Dec
2009

Asset-backed Securities

0 0 0
0
0
0
0 0
0 0 0 0 0

Basic Industry

0 0 0 44 128 0 152 324 46 0 0 370 -37

Capital Goods

0 0 18 18 8 0 27
70 498 0 0 568 202

Consumer Products

0 5 0 248 15 0 84 352 308 0 0 660 172

Covered Bonds

3,515

52 0 1 0 0 0

3,567

0 0 0

3,567

716

Energy

0 7 0 4 0 0 498

509

36 0 0 545 112

Financial Institutions

2 726

1,744

230 86 0 19

2,807

0 0 9

2,817

3

Governments

738 12 4 17 0 0 52

823

0 0 0 823 -230

Index-linked Bonds

42 9 146 64 27 0 11

299

0 0

0

299 -445

Insurance

0 0 0 6 0 0 0

6

200 0 0 206 9

Media

0 0 0 0 8 0 28

36

0 0 0 36 27

Municipalities

312 0 0 0 1 0 0

313

0 0 0 313 247

Real Estate

0 0 0 0 0 0 13

13

0 78 0 91 23

Services

0 0 0 22 18 0 11

51

1 0 0 52 1

Technology and Electronic

0 0 0 0 0 0 0 0 3 0 0 3 -22

Telecommunications

0 0 45 39 20 0 0

103

48 0 0 151 10

Transportation

0 0 0 1 0 0 190

191

10 0 0 201 -28

Utilities

0 0 236 26 0 0 25

287

1 0 0 288 72

Others

0 26 0 0 0 0 34

60

23 0 0 83 26

Funds

0 0 0 0 98 0 25

122

475 28 0 625 145

Total

4,607

838

2,193

720 408 0

1,168

9,934

1,648

106 9

11,697

1,002

Change 31 Dec 2009

-110

96 263 17 39 -2 218

520

512 -19 -10

1 002

 

Investment allocation according to asset classes, sectors and fixed income investment according to rating, Mandatum Life, 31 Dec 2010

EURm 

AAA

AA+ - AA-

A+
-
A-

BBB+ - BBB-

BB+ -
C

       
D

Not rated

Fixed income total

Equi-
ties

Other

Deriva-
tives (counter-
party risk)

Total

Change 31 Dec
2009

Asset-backed Securities

0 0 4
3
0
0
12 18
0 0 0 18 2

Basic Industry

0 0 4 50 278 0 126 458 169 4 0 631 117

Capital Goods

0 3 121 61 0 0 7
192 155 0 0 347 22

Consumer Products

0 0 28 66 3 0 65 162 53 7 0 221 46

Covered Bonds

90

42 0 0 0 0 0

133

0 0 0

133

-4

Energy

0 0 15 0 0 0 48

63

19 0 0 82 43
Financial Institutions
0 694

813

93 71 0 20

1,691

19 23 26

1,759

-219
Governments 107 0 0 0 0 0 0

107

0 0 0 107 73

Index-linked Bond

0 0 0 0 0 0 0

0

0 0

0

0 0

Insurance

0 0 28 20 0 0 25

73

17 0 0 89 4

Media

0 0 0 0 0 0 0

0

59 0 0 59 -3

Municipalities

0 0 0 0 0 0 0

0

0 0 0 0 0

Real Estate

0 0 0 0 0 0 0

0

0 143 0 143 -13

Services

0 0 0 7 17 0 0

24

50 9 0 83 18

Technology and Electronic

0 0 0 18 0 0 14 31 83 0 0 115 6

Telecommunications

0 0 52 90 0 0 0

142

24 0 0 167 14

Transportation

0 0 0 0 0 0 32

32

6 0 0 38 -7

Utilities

0 13 167 67 0 0 0

248

54 0 0 302 2

Other

0 0 7 0 0 0 24

31

2 0 0 33 -15

Funds

0 0 0 0 210 0 13

223

976 438 0

1,638

452

Total

198

753

1,239

474 580 0

384

3,627

1,686

624 26

5,963

538

Change 31 Dec 2009

98

-36 -288 23 -56 0 213

-48

451 153 -18

538

 

Investment allocation according to asset classes, sectors and fixed income investments according to rating, Sampo Group, 31 Dec 2010

EURm 

AAA

AA+
-
AA-

A+
-
A-

BBB+ - BBB-

BB+ -
C

   D

Not rated

Fixed income total

Equi-
ties

Other

Deriva-
tives (counter-
party risk)

  Total

Change 31 Dec 2009

Asset-backed Securities

0 0 4
3
0
0
12 18
0 0 0 18 2

Basic Industry

0 0 4 94 405 0 278 781 215 4 0 1 000
80

Capital Goods

0 3 139 79 8 0 34
262 653 0 0 915 224

Consumer Products

0 5 28 314 18 0 149 514 361 7 0 882 218

Covered Bonds

3,605

94 0 1 0 0 0

3,700

0 0 0

3,700

712

Energy

0 7 15 4 0 0 546

572

56 0 0 627 155
Financial Institutions
2

1,929

2,629

323 158 0 44

5,085

19 23 54

5,180

-53
Governments 845 12 4 17 0 0 52

930

0 0 0 930 -157

Index-linked Bonds

42 9 146 64 27 0 11

299

0 0

0

299 -445

Insurance

0 0 28 26 0 0 25

79

234 0 0 312 13

Media

0 0 0 0 8 0 28

36

59 0 0 95 24

Municipalities

312 0 0 0 1 0 0

313

0 0 0 313 247

Real Estate

0 0 0 0 0 0 13

13

0 227 0 240 3

Services

0 0 0 29 35 0 11

75

51 9 0 134 19

Technology and Electronics

0 0 0 18 0 0 14 31 86 0 0 117 -16

Telecommunications

0 0 97 129 20 0 0

246

72 0 0 318 24

Transportation

0 0 0 1 0 0 222

222

16 0 0 239 -35

Utilities

0 13 403 93 0 0 25

535

55 0 0 590 74

Other

0 26 7 0 0 0 58

91

27 1 0 119 12

Funds

0 0 0 0 308 0 37

346

1,451

482 0 2,279
595

Total

4,805

2,099

3,504

1,193

987 0

1,558

14,147

3,353

753 54

18,307

1,696

Change 31 Dec 2009

-13

558

-382

40 -17 -2 433

617

965 124 -10

1,696

 

The weights of covered bonds, non-rated bonds and fund investments in the portfolio were actively increased, whereas the weights of index-linked bonds and government bonds were reduced. The total exposure and especially the equity investments increased in value.

Fixed Income Investments

Table "Fixed income investments by type of instrument excluding derivatives, If P&C, Mandatum Life and Sampo Group , 31 Dec 2010" presents the amount and average maturity of fixed income investments of Sampo Group by type of instrument. Sampo Group has a considerable amount of credit risk investments and is exposed to credit spread risk that is measured and managed as a part of the investment portfolio management. The limit setting is described in detail in the Credit risks section.

The average maturity of fixed income investments that affects the size of credit risk was 2.9 years in If P&C and 3.5 years in Mandatum Life. When it comes to interest rate sensitivity, the average duration of fixed income investments including derivatives in If P&C was 1.7 years and in Mandatum Life 2.7 years.

During 2010, the proportion of money market securities and cash decreased from 14 per cent to 13 per cent. The proportion of high yield bonds increased to 15 per cent (14 per cent in 2009).

Fixed income investments by type of instrument excluding derivatives, If P&C, Mandatum Life and Sampo Group, 31 Dec 2010

   

If P&C

 

Mandatum

Life

Sampo

Group

 

 

EURm

% of fixed income portfolio

Average maturity (years)

EURm

% of fixed income portfolio Average maturity (years)
EURm
% of fixed income portfolio
Average maturity (years)

Money market and cash

581

6%

0.2
613
17%
0.2

1,774

13%

0.2

Government bonds

1,134

11%

3.7 108

3%

27.5

1,242

9%

5.7

Covered bonds

3,567

36%

3.2 133

4%

5.0

3,700

26%

3.3

Investment grade bonds

2,271

23%

2.8

1,388

38%

2.8

3,659

26%

2.8

High-yield bonds

1,354

14%

2.8 795

22%

4.0

2,155

15%

3.3

Asset-backed securities

0

0%

0.0 18

1%

4.0

18

0%

4.0

Sub-ordinated loans

693

7%

2.2 531

15%

3.0

1,223

9%

2.6

Policy loans

0

0%

0.0 25

1%

3.8

25

0%

3.8

Swedish index-linked bonds

299

3%

4.8 0

0%

0.0

299

2%

4.8

Total

9,899

100%

2.9

3,611

100%

3.5

14,096

100%

3.0

Equity Investments

The equity investments of Sampo Group totalled EUR 3,353 million at year end 2010 (2,389 million in 2009). The equity portfolios of both If P&C and Mandatum Life have long-term investment horizons. During 2010, the increase in the proportion of equity investments was due to the rise in equity prices as well as net purchases in both companies.

At year end 2010 the exposure of If P&C was EUR 1,648 million (1,136 million in 2009). The proportion of equities in If P&C's investment portfolio was 14.1 per cent at year-end. The equity portfolio consists of listed shares of Nordic companies as well as a global fund portfolio. Mandates for investments are given in the Investment Policy.

At year end 2010 the exposure of Mandatum Life was EUR 1,686 million (1,235 million in 2009). The Nordic equity portfolio is managed by Sampo Group's Investment Management unit while the equity investments outside the Nordic area are mainly managed through funds or external asset managers.

The breakdown of the equity exposures of Sampo Group by geographical regions are shown in figures "Breakdown of equity investments by geographical regions, Sampo Group, 31 Dec 2010", "Breakdown of equity investments by geographical regions, If P&C, 31 Dec 2010" and "Breakdown of equity investments by geographical regions, Mandatum Life, 31 Dec 2010".

 

 

 

 

The geographical emphasis in Sampo Group's equity investments is in Nordic companies. The proportion of Nordic companies' equities corresponds to 57 per cent of the total equity portfolio. This is in line with Sampo Group's Nordic focus and the fact that technical provisions relate to the Nordic currencies.

The sector allocation of direct equity investments in Sampo Group is shown in table "Investment allocation according to asset classes, sectors and fixed income investments according to rating, Sampo Group, 31 Dec 2010". The largest sectors are capital goods, consumer products, insurance due to the Topdanmark holding and basic industry. Equity investments made through investment funds accounted for 43 per cent of the entire equity portfolio.

Sampo Group's largest equity holdings are disclosed in the Notes to the Financial Statements (note 40).

Currency risks

Currency risk in general can be divided into transaction risk and translation risk. Transaction risk refers to the currency risk arising from contractual cash flows related to the insurance or investment operations or from hedges related to these cash flows. Translation risk refers to the currency risk that arises when consolidating the financial statements of subsidiaries that have a different base currency than the parent company.

In Sampo Group, the open transaction risk positions are considered and measured separately. The net position in each currency is the net of assets, liabilities and foreign exchange transactions denominated in the particular currency.

If P&C writes insurance policies that are mostly denominated in Scandinavian currencies and in euro. The currency transaction risk is reduced by matching technical provisions with investments in the corresponding currencies or by using derivatives. The open currency position is actively managed to enhance returns.

In Mandatum Life, currency transaction risk mainly arises from investments in other currencies than euro because the company's technical provisions are almost completely denominated in euro. Mandatum Life's currency strategy is based on active management of the currency position. The objective is to achieve positive return relative to a situation where the open currency risk exposure is fully hedged.

The currency transaction risk positions of If P&C and Mandatum Life against their home currency are shown in tables "Transaction risk position, If P&C, 31 Dec 2010" and "Transaction risk position, Mandatum Life, 31 Dec 2010". The tables show the net transaction risk exposures and the changes in the value of positions given a 10 % decrease in the value of the home currency.

Transaction risk position, If P&C, 31 Dec 2010

Base currency: SEK

EUR

USD
JPY
GBP
SEK
NOK
CHF
DKK
EEK
LTL
LVL
Other
Net total

Insurance operations

-440 -165
0
-17
-80

-2,901

-1 -755
0
-1
-1
-11

-4,372

Investments

25

1,299

34 0 261

1,795

0 208 0 0 0 0

3,622

Derivatives

408 -1,112
-35 17 -186

1,062

0 537 0
0 0 7 698

Total transaction risk, net position

-7 22 -1 0 -5

-44

-1 -10 0 -1 -1 -4 -52

Sensitivity: SEK -10 %

-1 2
0 0 0

-4

0 -1 0 0 0 0 -5

Options are included according to their delta-values.

Transaction risk position, Mandatum Life, 31 Dec 2010

Base currency: EUR

EUR

USD
JPY
GBP
SEK
NOK
CHF
DKK
EEK
LTL
LVL
Other
Net total

Technical provisions

0 0
0
0
-2

0

0 0
0
0
0
0

-2

Investments

0

1,084

22 171 16

31

16 5 17 5 1 271

1,639

Derivatives

0

-675

-41 -144 54

56

-16 0 0
0 0 -30 -797

Total transaction risk, net position

0 409 -19 27 68

87

0 5 17 5 1 241 840
Sensitivity: EUR -10 % 0 41 -2 3 7 9 0 0 2 1 0 24 84

Options are included according to their delta-values.

Sampo plc´s transaction risk position is related to SEK-denominated dividends paid by If P&C and to debt instruments issued in other currencies than euro.

In addition to transaction risk, Sampo Group and its insurance subsidiaries are also exposed to translation risk. Sampo Group´s consolidated financial statements are denominated in euro. Translation risk arises when entities with another base currency are consolidated into the Group financial statements. The effect of changes in foreign exchange rates result in translation differences which are recognised in the consolidated comprehensive income statement. Translation risks arise also within If P&C and to a lesser extent within Mandatum Life from their subsidiaries whose base currency is different from that of the respective parent company.

Real-estate, private equity and hedge fund investments

If P&C and especially Mandatum Life have real estate, private equity and hedge fund investments. The Investment Policies set limits for maximum allocations into these markets and products. On 31 December 2010, the combined share of the above mentioned investments was 4.1 per cent of the total investment portfolio. In If P&C the proportion was 0.9 per cent and in Mandatum Life it was 10.5 per cent.

Private equity and hedge funds are managed by external asset managers. The private equity portfolio is diversified both according to fund type and geographical areas. Hedge fund investments are diversified between underlying asset classes, fund types and investment styles. The real estate portfolio in Mandatum Life is managed by Sampo Group's real estate management unit. The portfolio includes direct investments in properties as well as indirect investments in real estate funds and shares and debt instruments in real estate companies. The main risks related to property investments are limited by diversifying holdings both geographically and by type of property.

Previous page Next page
Tools to Manage Your Report