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Life Insurance in 2012

Mandatum Life Group consists of Mandatum Life, a wholly-owned subsidiary of Sampo plc, operating in Finland, and its subsidiary Mandatum Life Insurance Baltic SE. Mandatum Life Insurance Baltic SE has the form of a European company and is headquartered in Estonia. It operates in the other Baltic countries through branches.

Results
Life Insurance, 2012
EURm20122011Change, %

Premiums written

977 

849

15

Net income from investments

574 

-41

-

Other operating income

2 103

Claims incurred

-669 

-922

-27

Change in liabilities for inv. and ins. contracts

-642 

348

-

Staff costs

-42  -38 13

Other operating expenses

-58  -53 10

Finance costs

-7  -8 -11

Profit before taxes

136  137 -1
 Key Figures 2012 2011 Change

Expense ratio, %

113.9  109.1  4.8 
Return on equity, % 28.5  -11.7  40.2 
Average number of staff (FTE) 545  521  24 

Profit before taxes in life insurance operations remained on previous year’s level and amounted to EUR 136 million (137). The total comprehensive income for the period reflecting the changes in market values of assets was EUR 286 million (-115) boosted by good investment performance. Return on equity (RoE) rose to 28.5 per cent (-11.7).

Investment Allocation
Mandatum Life, 31 December 2012

Mandatum Life Group’s investment assets, excluding the assets of EUR 3.8 billion (3.1) covering unit-linked liabilities, amounted to EUR 5.5 billion (5.4) at market values as at 31 December 2012.

Mark-to-market return on investments in 2012 was 9.4 per cent (-1.4). At the end of December 2012 duration of fixed income assets was 1.8 years (1.8) and average maturity 2.1 years (2.3). Fixed income running yield was 4.8 per cent (5.4). The impairment losses in 2012 amounted to EUR 38 million.

Net investment income, excluding income on unit-linked contracts, increased to EUR 280 million (255) due to good equity and fixed income returns. Net income from unit-linked contracts was EUR 294 million (-296). In 2012, fair value reserve increased by EUR 177 million to EUR 391 million.

Mandatum Life Group’s solvency margin clearly exceeded Solvency I requirements and amounted to EUR 1,391 million (1,049) as at 31 December 2012. The solvency ratio increased to 27.7 per cent (20.9). Total technical reserves of Mandatum Life Group were EUR 7.9 billion (7.3). Unit-linked reserves increased EUR 0.7 billion and amounted to EUR 3.8 billion (3.1) at the end of 2012, which corresponds to 48 per cent (42) of total technical reserves. The with-profit reserves decreased by almost EUR 200 million during 2012 and amounted to EUR 4.1 billion.

In the Finnish operations, the total return for policyholders on with-profit technical provisions in 2012 was 2.25–4.5 per cent, depending on the class of insurance, in total corresponding to roughly EUR 150 million. Customer bonuses varying from 0 to 1.25 per cent were included in the total return. The value of the unit-linked customers’ savings rose on average 8 per cent.

Majority of Mandatum Life’s traditional policies carry a guaranteed interest of 3.5 per cent. Individual policies sold in Finland before 1999 carry a guaranteed interest of 4.5 per cent. The discount rate for these policies has been lowered to 3.5 per cent and subsequently technical reserves have been supplemented with EUR 71 million (79). In addition, EUR 47 million has been reserved to lower the interest rate of all with-profit liabilities to 2.5 per cent in 2013 and to 3.25 per cent in 2014. All in all, Mandatum Life has increased its technical reserves with EUR 118 million (108) due to low level of interest rates.

Risk result amounted to EUR 19 million (25) in 2012. Expense result for Mandatum Life Group decreased in 2012 to EUR 6 million (10). Especially the rise of sales commissions, due to good sales performance, and bonuses burdened the result. Mandatum Life does not defer acquisition costs, which burdens the result for the sales year.

Mandatum Life Group’s premium income on own account surged to EUR 977 million (849). Increase in the sales through the Danske Bank distribution channel largely explained the positive development. Premiums in the main focus area of unit-linked insurance increased to EUR 810 million (649). Premium income from the Baltic countries was EUR 33 million (41). Mandatum Life’s unit linked market share in Finland was 26.2 per cent (26.8) and the overall market share was 24.5 per cent (24.9). Market share in the Baltic countries decreased to 11 per cent (15).

The rise of the minimum retirement age for new individual pension insurance policies and PS contracts after 1 January 2013 will, in Mandatum Life’s view, substantially weaken the demand for new pension policies. The company decided to discontinue the sale of individual pension insurance policies to corporate customers, after having already previously ceased selling these products to private customers. Mandatum Life has adjusted both its product and service offering and its sales organization to better reflect the new market situation in the beginning of 2013.