Sampo Group’s Online Annual Report 2012 and Sampo’s video ‘25 Years as a Listed Company’ have been granted the international Red Dot Communication Design 2013 Awards.

Red Dot design award winner 2013

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 refinancing and financial derivatives are identified as potential risks that could affect the company’s ability to conduct regular business.

Liquidity risk is relatively immaterial in Sampo Group’s businesses because a substantial share of the investment assets are in short-term money market instruments.

The figure Illustration of liquidity risk presents liquidity risk on a general level.

Illustration of Liquidity Risk

In If P&C, liquidity risk is limited, since premiums are collected in advance and large claims payments are usually known a long time before they fall due. Liquidity risks are managed by cash management functions that are responsible for liquidity planning. Liquidity risk is reduced by having investments that are readily tradable in liquid markets. The available liquidity buffer of financial assets, i.e. the portion of the assets that can be converted into cash at a specific point in time, is analyzed and reported to the IRCC on a quarterly basis.

In Mandatum Life, 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 small. During the year Sampo plc issued two bonds and the maturities were selected carefully in order to have a well-diversified maturity profile.

Sampo Group companies have business relationships with several creditworthy counterparties which mitigate the risk that Sampo Group is 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 the end of 2012, the liquidity position in each legal entity was in accordance with internal requirements.

The maturities of technical provisions and financial assets and liabilities are presented in the table Cash flows according to contractual maturity, If P&C, Mandatum Life and Sampo plc, 31 December 2012. 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
If P&C, Mandatum Life and Sampo plc, 31 December 2012
  Carrying amount total Cash flows
EURmCarrying
amount
total
Carrying amount
without
contractual
maturity
Carrying amount
with
contractual
maturity
       2013      2014      2015      2016      2017    2018–2027      2028
If P&C                    
Financial assets 13,009 1,794 11,215 2,845 2,497 2,072 1,843 1,124 488 0
of which interest
rate swaps
2 0 2 0 0 0 0 0 0 0
Financial liabilities 988 0 988 -124 -14 -164 -7 -7 -136 0
of which interest
rate swaps
1 0 1 0 0 0 0 0 0 0
Net technical provisions 9,277 0 9,277 -3,366 -932 -648 -520 -437 -2,452 -2,000
                     
Mandatum Life                    
Financial assets 5,429 2,409 3,020 1,146 675 248 342 333 344 22
of which interest
rate swaps
20 0 20 9 0 0 0 0 0 22
Financial liabilities 109 0 109 -9 -7 -6 -5 -5 -61 -239
of which interest
rate swaps
2 0 2 -1 -1 0 0 0 0 0
Net technical provisions 3,953 0 3,953 -446 -389 -373 -335 -309 -2,033 -1,524
                     
Sampo plc                    
Financial assets 1,132 224 908 583 26 43 24 27 184 239
of which interest
rate swaps
42 0 42 14 13 12 14 16 0 0
Financial liabilities 2,181 0 2,181 -990 -377 -56 -394 -552 0 0
of which interest
rate swaps
0 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 Mandatum Life, the investments of the Baltic subsidiary are included in the carrying amount but excluded from the cash flows.