The Most Significant Risks to Operations

As a diverse financial institution, Sampo Group is exposed to a variety of different risks, both financial and non-financial. The major risks associated with Sampo Group's activities during 2010 were insurance risks arising from P&C and Life insurance business areas, as well as market and credit risks emanating from the Group's investment portfolios and the debt financing of Sampo plc.

During 2010, Sampo Group's insurance risk profile remained relatively stable. In Mandatum Life longevity risk is still the most material biometric risk and most of it arises from the group pension portfolio. In If P&C the most material insurance risk is reserve risk, which to a large extent is driven by long-tailed business such as workers' compensation and motor third party liability.

The main market risks of Sampo Group during 2010 were equity risk, interest rate risk and credit risk. Equity risk arises from the Group's equity portfolio amounting to EUR 3.4 billion (2.4). Interest rate risk is related to the Group's fixed income investments and insurance liabilities. In the short run, rising interest rates would decrease the valuation of fixed income assets. However, over a long period the risk that interest rates fall and remain at a low level is economically more remarkable, because Group´s liabilities have as an average longer duration than assets. Fixed income investments also expose the Group to credit risks, the significance of which has increased during the year. The amount of the Group's fixed income investments increased to EUR 14.2 billion (13.2) during 2010.

Currency risk is the risk that Sampo Group will incur losses due to changes in foreign currency exchange rates. If P&C and Mandatum Life are mainly exposed to currency risk via their net currency exposures stemming from business activities. In Sampo plc transaction risk relates mainly to dividends paid by If P&C. At Group level changes in foreign currency exchange rates can change group equity.

Operational risks, such as failures in internal processes and systems, and business risks, such as changes in the economic environment or business cycle, are inherent throughout all business areas. The perceived risks in the businesses and operating environment did not change significantly during 2010.

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