Sampo Group's steering model
Sampo Group’s steering model is straightforward and simple. The Group’s parent company Sampo plc steers the subsidiaries by setting targets for subsidiaries’ return on equity and pre-conditions for operations according to which the subsidiaries organize their activities independently taking into account the specific characteristics of their own operations. The subsidiaries focus on their own business under the oversight of their Boards of Directors.
Parent company Sampo plc reviews the Group on both entity level and on Sampo Group level. Subsidiaries’ reporting to the governing bodies of Sampo plc concentrates particularly on the balance between risks, capitalization and profitability. In the Group level reporting, the central focus areas are potential concentrations arising from the Group companies’ operations as well as the Group’s capitalization and liquidity position. Sampo Group’s steering model is presented in the figure Illustration of Sampo Group’s steering model.
Illustration of Sampo Group's Steering Model
Parent Company Guidance
The Board of Directors of the parent company decides on the subsidiaries’ return on equity targets which are currently 17.5 per cent for both If P&C and Mandatum Life. In addition, If P&C has a long-term target of maintaining a combined ratio of less than 95 per cent.
The basis for capitalization is the internally estimated amount of economic capital which reflects the capital employed in the company’s measurable risks. In addition, the perceived riskiness of the company’s operating environment is taken into account in assessing capitalization. Capitalization is also affected by the subsidiaries’ credit rating targets of which the most important is the target of rating A set for If P&C. These three aspects, together with the regulatory capital requirement, are the main aspects affecting the level of capitalization that is considered to be adequate for each subsidiary and the amount of dividends distributed by the subsidiaries to the parent company. In Sampo Group, the excess capital from an operational point of view is held by the parent company Sampo plc which capitalizes the subsidiaries with its liquid assets if needed.
The Board of Directors of the parent company decides on the main principles governing the subsidiaries risk management related operations of which the most significant are Code of Conduct, Risk Management Principles, Remuneration Principles and Compliance Principles. In addition to these guidelines, the external regulatory environment and expectations of different stakeholders on Sampo Group’s operations impact Sampo plc’s Board of Directors’ decisions in general and thereby also the guidance given by the parent company.
Various stakeholders impact or aim to impact Sampo Group’s operations. The following includes examples of Sampo Group’s stakeholders as well as a general description of the interaction between these stakeholders and Sampo Group:
The Group complies with and follows carefully the laws and other regulations set by the authorities.
In addition to the authorities, at least three types of interest groups have expectations regarding Sampo Group’s operations. These expectations are openly welcomed although the significance of the expectations in relation to the operations is always assessed internally by Sampo Group.
Continuous dialogue is maintained with parties representing the markets and the views of such parties on, among others, high quality operations, risk taking and capitalization are factors affecting the organization of operations.
Self-regulation of the business community and the best practices within banking and insurance industry are closely followed in Sampo Group. Self-regulation and industry specific best practices are taken into account in developing own operations.
Moreover, the expectations and recommendations of other interest groups regarding the operations are followed in Sampo Group. These points of view are assessed and thus they potentially may have an effect on the Group’s operations and their organization in the long run.
Sampo Group’s subsidiaries decide independently on the governance structure of their own operations as well as on the policies, limits, authorizations and instructions of specific areas in accordance with the main principles steering the operations defined by the parent company. The executive management of the subsidiaries mainly consists of professionals with extensive experience in the insurance industry. Complementary investment, financial, risk and capitalization as well as mergers and acquisitions expertise is provided by the members of the subsidiaries’ Boards of Directors who are mainly in senior management positions in Sampo plc. The members of different committees and governing bodies represent expertise related to business and other functions. The subsidiaries’ operations are monitored by the different governing bodies and ultimately by the Boards of Directors.
Since only the main principles regarding operations are prepared by the parent company, the subsidiaries’ management has the power and responsibility to incorporate the specific characteristics of their own operations to the company specific policies and instructions. The regulatory environment and stakeholders’ expectations are naturally also directly reflected on the organization of the subsidiaries’ operations.
At operative level, the subsidiaries focus on effective execution of insurance operations. Investments are managed according to the Investment Policies which are approved by the Board of Directors of respective subsidiaries. Furthermore, the financial and risk management activities are coordinated by the parent company although most of the operational activities are carried out by the subsidiaries. Investor relations are managed centrally by the parent company Sampo plc.
Group Level Control of Operations
In addition to the parent company’s employees taking part in the Board activities of the subsidiaries, the parent company Sampo plc follows and analyzes the performance of the subsidiaries and the associated company Nordea Bank AB based on their reporting. The information on Nordea Bank AB is, however, based on publicly available material and is therefore less detailed. Reporting on the subsidiaries to the Board of Directors and Audit Committee of Sampo plc is based mainly on the reporting produced by the subsidiaries and the supplementary company specific analyses prepared by the parent company.
The parent company is also projecting and analyzing the Group companies’ profitability, risks and capitalization with uniform scenarios to have company level forecasts that are additive at business portfolio level. To facilitate the Group level analysis, the parent company gives feedback to the subsidiaries regarding their reporting processes if needed.
The parent company Sampo plc is responsible for reporting on its own activities as well as the reporting on the Group’s risk concentrations and capitalization. Based on this information, the Board of Directors of Sampo plc decides on the Group’s capitalization as well as the parent company’s debt structure and liquidity reserve. The underlying objective of Sampo plc is to maintain a prudent debt structure and strong liquidity in order for the company to be able to arrange financing for strategic projects if needed. Strong liquidity and the ability to acquire financing are essential factors in maintaining Sampo Group’s strategic flexibility.
Summary of Sampo Group’s Steering Model
The central elements in Sampo Group’s steering model are the following; (i) parent company Sampo plc sets the central targets and preconditions for the subsidiaries’ operations, (ii) the management of the subsidiaries is able to focus on the insurance business as the parent company has an active role in the investment, investor relations, capitalization and M&A activities of the subsidiaries, (iii) Sampo plc analyzes the Group as a business portfolio and is active in matters related to the Group’s capitalization and risks as well as the parent company’s capital structure and liquidity if necessary.