Sampo Annual Report 2005

sampo group review 2005

Sampo’s year did not surprise anyone... ampo Group

Sampo is a financial services group comprising

• If, the leading P&C insurance company in the Nordic countries • Sampo Bank, an expert in retail and corporate banking services for customers in Finland and the Baltic countries • Sampo Life, an expert in life and pension insurance products for customers in Finland and the Baltic countries • Sampo Group also operates under brand names such as Arvo Asset Management, Realty World (Kiinteistömaailma), Mandatum and Volvia.

Sampo Group’s core businesses are banking, long-term savings and property and casualty insurance.

P&C insurance

RoE 24.1% Banking and investment services Combined ratio 90.5%

RoE 23.1% If P&C Insurance is the leading property and Cost to income ratio 57.3% casualty insurance company in the Nordic countries, with approximately 3.6 million custo- Sampo Bank provides banking services and mers and a staff of about 6,600 people. In 2005, services required for managing money affairs If’s total premiums written were EUR and financially securing the future for 4 billion. If offers P&C insurance retail, corporate and institutional in Finland, Sweden, Norway, customers. About 1,1 million Denmark, Estonia, Latvia retail customers and almost and Lithuania. 100,000 corporate and institutional customers use these banking and long-term savings services. Sampo’s RoE 28.4% banking and investment Earning per share, EUR 1.68 Profit before taxes EURm 1,295 Life insurance services employ about 4,200 people and are available in RoE 39.0% Finland, Sweden, Estonia, Latvia Expense ratio 93.4% and Lithuania. Sampo is also well-known to Finnish custo- Sampo Life specialises in life and pension insurance, mers for its Mandatum brand in asset mana- with operations in Finland, Sweden, Norway, Estonia, Latvia gement, private banking, corporate finance and Lithuania. Sampo employs approximately 370 people in and stock brokerage. Some of the mutual its life and pension insurance businesses. funds also still bear the name Mandatum. In real estate, Realty World (Kiinteistömaailma) offers real estate agency services for houses and apartments on our behalf all over Finland.

Group profit before taxes Sampo Group staff per country, per cent

EURm Lithuania 4% Latvia 1% 1,200 Others 1% 1,000 Estonia 8% 800 Denmark 3% 600 400 Norway 15% Finland 52% 200 0 Banking Life IF P&C Other Sampo Sweden 16% and Insurance Insurance Group Investment Services ...nor did our return on equity – negatively, that is. RoE rose to

per cent 28.4 (26.5). Contents

2 Chief Executive Officer’s Review 4 Strategy 5 Sampo Group’s Return Targets 6 Sampo’s Year 2005 8 Sampo’s History 9 Corporate Governance 14 Organisation 15 Main Legal Structure 16 Board of Directors 18 Group Executive Committee 20 Group Staff 21 Corporate Responsibility 22 Shares and Shareholders Chief Executive Officer’s Review

Sampo Group | Sampo Group Review 2005 At Sampo we have had to get used to the In 2005, If substantially expanded of control, not housing loans. Historically fact that the markets, media and equity its product portfolio by launching a set low debt service costs have now made analysts from time to time seem taken by of new health insurance policies in all owning your own home possible to ever surprise by our strategic moves. In 2005, Nordic countries. The Norwegian par- increasing numbers of Finns – and with- we apparently amazed many again – but liament recently passed legislation that out government intervention. The indebt- this time by focusing on our core busi- requires companies to complement their edness of Finnish households still remains nesses and recording superb results. employees’ statutory pension cover with well below the Eurozone average. Despite For the second consecutive year our unit-linked group pension plans from the strong growth and competition, Sampo profit before taxes exceeded one billion beginning of 2006. In our P&C operation Bank does not compromise on its lending euros, and this time by rather a wide mar- we have an efficient distribution chan- criteria. We plan on sustaining growth in gin. Following the outstanding year 2004 nel for this product, and If will therefore the coming years, but without compromis- I did not dare predict an improvement start offering Sampo Life’s OTP-pen- ing profitability or credit quality. of this magnitude and, as a consequence, sion product to its Norwegian corporate characterized our results as “almost too customers. To support these products and A good year for investments good to be true” at the close of the third services, Sampo Life has established a A substantial part of last year’s result was quarter. The final quarter did not weaken Swedish subsidiary, If Livförsäkring, and due to good investment income. Sampo the results. is considering a similar arrangement in Group’s investment assets of EUR 16 Norway. billion yielded EUR 1.3 billion (about If, the Nordic market 8%). EUR 1.1 billion of these returns were leader, is fighting fit Sampo Bank: a big success recognised in the consolidated income in the mortgage markets Our P&C insurance division, If, appears statement, while the rest, EUR 0.2 bil- to go from strength to strength. Its com- Sampo Bank rose to the growth chal- lion, were added to the fair value reserve. bined ratio fell further to reach 90.5 per lenge I offered it a year ago and actually The equity weighting in our investment cent (92.6). The main driver behind the reached or surpassed all its targets. The portfolio was about 16 per cent at the end improvement was greater operational ef- banking division wrote one in every four of the year. ficiency, since, unlike the year before, large new mortgage loans in Finland last year. Although the past year offered us claims were somewhat higher than ex- Growth was similarly rapid in Estonia and good returns, I do not wish to count on pected. As a consequence, I am absolutely Lithuania. Success on this scale cannot investments for future results. We want to convinced that our combined ratio target be accomplished by just a trick or two; it stand out in the bank and insurance in- of less than 95 per cent at every stage of requires persistence and determined effort dustry by insisting on the profitability of the cycle is realistic. over the long term. Our bank operates our core businesses in all economic condi- In P&C insurance, we are further in- in Finland and all three Baltic countries. tions, even at times when capital markets creasing our emphasis on risk selection. As During 2005, we expanded operations are offering superior returns. To this end, the leading Nordic P&C insurer, we have in a restricted product area by establish- we will continue our efforts to cut costs access to a unique pool of information and ing a branch office in Sweden, and late in and improve our risk selection in the experience. We will continue to prioritise the year we announced a project aimed at present year as well. efficiency and sensible risk selection over commencing operations in Russia as well. I wish to thank our customers and market share. Thereby we can offer our In both Finland and Estonia the shareholders, and particularly our staff, for customers the best pricing of risk in the end of the year was marked by a public the past year. It is your determination and market and reach our own profitability debate on the risks associated with the commitment that have made our year an targets. This approach has, among other fast growth in housing loans. It was sug- outstanding one. Your role will continue things, led to our success in the competi- gested that, in granting new mortgages to be crucial in building Sampo’s future. tion for Nordic branded auto insurance. with longer maturities and lower margins, I trust that you all – in whichever of our While focusing on the many positives it banks may have forgotten the lessons of businesses you are employed – will join me should not be forgotten that there is still the banking crisis of more than a decade in taking Sampo further forward. room for improvement in the efficiency of ago. To me it seems that some of the crit- If´s operations, particularly in Finland. By ics may themselves have chosen to disre- the look of things, dramatic measures are gard what I believe were the real reasons unlikely to be called for, but targeted cost behind the crisis; failed monetary policies Björn Wahlroos cuts will be the order of the day. and unsecured corporate lending run out Chief Executive Officer

Sampo Group | Sampo Group Review 2005 Sampo’s Strategy

We take care of your assets

Sampo Group’s strategy is to be the P&C insurance ers with convenient, costefficient services. most innovative, cost-efficient and In the P&C insurance business, If ’s Sampo Bank’s real competitive strengths customer-oriented bank and insu- strategy is to benefit from the economies are its expertise and good service. This is rance company in the Nordic and of scale offered by its Nordic organisa- expressed in the retail customer business Baltic countries. Sampo Group’s core tion. These occur mainly in back office through its Personal Financial Plans serv- business areas are P&C insurance functions, IT and standardised work ice and in the corporate customer business (marketed under the If brand in the processes. With an efficient organisation through its knowledge of customers and Nordic and Baltic countries), banking If can achieve underwriting excellence, ability to anticipate their needs. and long-term savings (marketed i.e. optimal pricing and risk selection. By Sampo’s growth on the long-term under the Sampo Bank and Sampo introducing standardised work processes savings market stems from the desire and Life brands in Finland, Estonia, throughout the Nordic area, If can main- ability of customers to save more actively Lithuania and Latvia), and the ef- tain a lower cost level than its competitors. than ever before. This trend is supported ficient investment needed to support If ’s objective is long-term customer by the ageing of the population, the public them. In Finland, Sampo Group also relationships, and thus the continual im- discussion on the sufficiency of pension operates under brand names such provement of customer service and rela- cover and currently modest proportion of as Arvo Asset Managemnet, Volvia, tionships is vital. Great availability of serv- Finland’s household savings that are in- Mandatum and Realty World (Kiin ices and prompt claims handling will play a vested in fund and life insurance products. teistömaailma). key role in ensuring that customers contin- Sampo aims to achieve a rate of growth on ue to select If as their insurance company. the banking and long-term savings mar- Customised electronic solutions simplify kets that is higher than the average growth the administration of insurance cover and of these markets. also improve the availability of services for Sampo Life’s strong expertise and private and corporate customers. market position provides a good foun- If has a unique position in the Nordic dation for success in the long-term sav- market and intends to retain it. In ad- ings market in the future, too. Significant dition, growth in the Baltic market will growth can be expected in the coming continue to be strategically important. years, particularly in supplementary pension insurance and pure risk policies for Banking, long-term savings key corporate personnel, as well as in the and life insurance management of personal risk for both pri- In the banking and long-term savings vate persons and entrepreneurs. business, Sampo’s strategy is to be a long- Investment activity term partner for its customers, rather than just a vendor of individual products. Customers and shareholders have entrusted In banking, Sampo aims to increase their assets to Sampo for investment in its market share in all sectors, from hous- many ways. Sampo exercises prudence in its ing loans to the management of corporate investments, but is nevertheless return-ori- payments. An essential and challenging ented. Prudence means that no unconscious goal for the coming years is to establish risks are taken which, if realised, might new overall customer relationships. significantly affect the returns of either Efficiency parallels growth as a key shareholders or customers. Return-orienta- aspect of Sampo’s banking operations. tion means that, in the long term, the goal is New banking technology has no intrin- to provide both shareholders and customers sic value and is not just a competitive with a better than risk-free return and a tool. It is the means to provide custom- better return than the market average.

Sampo Group | Sampo Group Review 2005 Sampo plc • Business portfolio management Group investments and funding • Benefits of coordinated activities • Capital optimisation and Group leverage

Banking and Nordic P&C Long-term savings Insurance in Finland • Cash flow generation • Growth market in long-term • Economies of scale savings • Stable revenues

The leading A leading P&C insurer financial services group Baltic countries in the Nordic

in Finland • Growth market in all business lines area

Cost efficiency An essential part of Sampo’s strategy Sampo aims to produce services for its is the realisation that it need not do every- customers more cost-efficiently than its thing itself. Sampo’s customers will get the competitors. Thus, the drive for greater best overall service when Sampo acquires efficiency is not just an aspect of a one-off those services from its strategic partners campaign, but established practice. that it cannot effectively produce itself.

Sampo Group’s Return Targets roE Target 2005 Banking and investment services 20% 23.1% Life insurance 17.5% 39.0% P&C insurance 17.5% 24.1% Sampo Group 19% 28.4%

RoE = Return On Equity see > www.sampo.com/ir for details

Sampo Group | Sampo Group Review 2005 Sampo’s Year 2005

Pressreleseases 20 January, 2005 Local management further empowered. Sampo Bank transfers housing loan APRIL decision-making to local branches m a Y 25 January, 2005 Sampo Group Executive Commit- tee is expanded Sampo Life subsidiary is licensed in Sweden: Realty World (Kiinteistömaailma) cel- Life insurance policies are rapidly ebrates 15th year and achievement of 4 February, 2005 If sells its 42 percent stake in gaining popularity around the Nordic recruiting goal: Gard Marine & Energy countries. This solution allows Sampo Life In 2004, the chain’s revenue grew by 17 March, 2005 Sampo Life’s Supervisory Board is and If to jointly offer the most comprehensive nearly 30 per cent, and we brokered abolished personal insurance package on the market.” 20 per cent more apartment and property Petri Niemisvirta, Managing Director, sales than in the previous year. Our growth 21 March, 2005 Sampo Fund Management Sampo Life Insurance Company Limited has easily outperformed that of the market.” launches a new raw materials fund Paavo Aunola, Managing Director, 5 April, 2005 Morten Thorsrud is appointed Head Realty World of Industrial business area at If P&C

14 April, 2005 Housing Loan Bank of Finland plc is renamed Sampo Housing Loan Bank plc

19 May, 2005 Aku Leijala is appointed Managing Director of 3C Asset Management

19 May, 2005 Juhani Elomaa is appointed Head of Mandatum Private Bank

22 June, 2005 Line Hestvik is appointed Head of Private business area, If P&C

9 September, 2005 The Banker magazine awards Sampo Bank as Finland’s Bank of the Year

14 September, 2005 Sampo Housing Loan Bank plc issues first Nordic jumbo covered bond

21 September, 2005 Arvo Asset Management starts as an investment services firm In 2005, Sampo Group continued to streamline In October, Sampo’s Board of Directors decided to its structure. At the end of 2005, Sampo Group’s transfer the investment services firms that were 10 October, 2005 Sampo Group transfers invest- businesses were divided into three legal entities, previously directly under Sampo plc’s ownership ment services firms to Sampo Bank (Concluded namely If P&C Insurance Holding AB (publ), to the ownership of Sampo Bank plc. Simultane- on 31 December). The organisation and executive Sampo Bank plc and Sampo Life Insurance Com- ously, Mika Ihamuotila, who already had overall titles are streamlined pany Limited. responsibility for banking and long-term savings 7 November, 2005 Petri Ekman is appointed The main streamlining actions were as follows: in Sampo, was appointed Managing Director of Deputy CEO of If P&C Insurance Company In February, If P&C Insurance AB (publ) sold off Sampo Bank. Ilkka Hallavo was appointed as his the rest of Gard Marine & Energy Ltd to Gard P&I Deputy. 9 November, 2005 Sampo sells Mandatum Private Ltd. The company in question was established In November, the ownership of AS If Eesti Kindlus- Equity Funds Ltd by If and Assuranceforeningen Gard in January tus (Estonia), AAS If Latvia and UAB If Draudimas 15 November, 2005 If P&C Insurance Ltd’s Baltic 2004 in connection with the streamlining of If’s (Lithuania), subsidiaries of If P&C Insurance Com- subsidiaries are transferred to If Skadeförsäkring functions and withdrawal from the Sea&Energy pany Limited, was transferred to If P&C Insurance Holding Ab business area. Holding AB (publ).

21 December, 2005 Sampo Life to concentrate all In March, the Annual General Meeting of Sampo its Baltic subsidiaries in one legal company Life decided to abolish Sampo Life’s Supervisory Board. 22 December, 2005 Ricard Wennerklint is ap- In June, Sampo agreed to sell its subsidiaries pointed Managing Director of If Skadeförsäkring AB operating in Poland – the Sampo PTE S.A. pension company and the Sampo T.U. Zycie S.A. life insurance company – to Nordea Life Holding A/S. Nec- essary official permits to conclude the transaction received in December.

Sampo Group | Sampo Group Review 2005 d e c e m b er j u n E sep t e m b er Sampo sells its businesses in Poland: Ford and If signed a freme agreement on car Sampo systematically developed and insurance for specific car makes: increased its business in Poland in This is the largest agreement made recent years and became the fifth-largest Sampo Bank recommends fixed-interest by If this year and is an indication pension fund on the market. Nevertheless, housing loans: that customers have noticed the benefits of Sampo Group’s core business areas are in In the current interest rate regime If’s joint Nordic solutions.” the Nordic countries and, with respect to we’re recommending long-term Torbjörn Magnusson, CEO of emerging markets, in the Baltic countries. fixed rates to our customers, because they If P&C Insurance Holding Ltd (publ) Thus, this transaction serves to clarify our represent a safe and sure solution.” objectives and operations in the core areas.” Mika Ihamuotila, President and CEO of Minna Kohmo, Head of Baltic business, Sampo Bank plc Sampo Life Insurance Company Limited

o C t o b er

Sampo Bank is planning to start banking operations in Russia: Now that Russian households are n o v e m b er becoming more affluent and legislation has improved, we want to apply our experience in Russia, too. We’re interested Sampo Life is licensed in Norway: both in Nordic corporate customers operat- The new legislation on statutory ing in Russia and in Russian households.” m a Y group pension insurance that will Mika Ihamuotila, President and CEO of enter into force in Norway at the beginning of Sampo Bank plc 2006 presents Sampo with a great opportu- Sampo and Vesa Puttonen establish Arvo nity to combine If’s distribution muscle with Asset Management Ltd to focus on the man- Sampo Life’s long expertise in group pension agement of value stocks: insurance. This solution will allow If to offer We can focus on portfolio manage- o C t o b er its corporate customers the most compre- ment and investment strategy when hensive service package on the market.” we co-operate with a major investment Petri Niemisvirta, Managing Director of house like Sampo. And the efficient distribu- Sampo Life Insurance Company Limited Sampo Bank issues bank card with picture tion network of Sampo Bank and Mandatum of Nightwish rock group: is a great channel for offering our products Picture cards are becoming to investors.” increasingly popular, and we are Vesa Puttonen, Professor, expanding our range of card graphics by Helsinki School of Economics introducing one that reflects the personality of its user.” Maarit Näkyvä, Executive Vice President, Sampo Bank plc

Sampo Group | Sampo Group Review 2005 Sampo’s History

Sampo

2004

Sampo-Leonia

2000 If

1999

Leonia

Mandatum 1998

1992

Sampo Mutual Insurance Corporation Postipankki 1909

1887 Skandia (P&C Insurance)

1855

Sampo Group took on its current form in Bank) in 1970. After the ability company in 1987, and its the spring of 2004, when Sampo acquired merger of Postipankki Oyj Storebrand shares were listed on the Hel- If Holding AB as its subsidiary. If P&C and Finnish Export Credit (P&C Insurance) sinki Stock Exchange. Insurance Holding Ltd, established in Ltd, both state-owned, in 1767 The merger of Sampo and 1999, had previously been jointly owned 1997, the new company Leonia into a new financial by Skandia and its subsidiary Skandia Liv, was named Leonia plc in services group resulted from a both from Sweden, Storebrand from Nor- 1998. decision made by the owners way and Varma Mutual Pension Insurance Sampo Mutual In- of Sampo Insurance Company Company from Finland. surance Corporation was and the Finnish government at Sampo’s banking activities were founded in 1909 by industrialists from the end of 2000. Mandatum, established started in 1887 with the establishment Turku. In the early 1970s, the P&C insur- in August 1998 as the result of a merger of the Finnish state-owned Postisäästö- ers, Sampo and Tarmo, merged, and the between Interbank Ltd and Mandatum pankki (Post and Savings Bank), which new company was called Sampo-Tarmo. & Co Ltd, was merged into the Sampo was reconstituted as the Postipankki (Post Sampo was converted into a limited li- Group in 2001.

Sampo Group | Sampo Group Review 2005 Corporate Governance

Sampo complies with the Corporate Board of Directors from among their members, at their first Governance Recommendation for Board of Directors’ duties meeting following the Annual General Listed Companies issued by HEX Plc, Meeting. the Central Chamber of Commerce Sampo’s Board of Directors is responsible The composition of the Board of Di- of Finland and the Confederation of for the management of the company in rectors of Sampo plc is as follows: Finnish Industry and Employers compliance with the law, the regula- which entered into effect on 1 July tions of the authorities, Sampo’s Articles Olli-Pekka Kallasvuo, Chairman 2004. Sampo’s Board of Directors of Association and the decisions of the Jyrki Juusela, Vice Chairman has also approved internal rules Shareholders’ Meeting. The operating concerning corporate governance, procedures and main duties of the Board Tom Berglund, Member internal control and reporting in of Directors have been defined in the Anne Brunila, Member Sampo Group. Board’s Charter. Georg Ehrnrooth, Member The Board of Directors decides on Christoffer Taxell, Member Sampo Group’s business strategy, approves the budget and the principles governing Matti Vuoria, Member the Group’s risk management and internal Björn Wahlroos, Member control, and is responsible for the proper management of the Group’s operations. The following Board members are inde- The Board also decides, within the lim- pendent of the company and its major its of the company’s field of activities, on shareholders: Olli-Pekka Kallasvuo, Jyrki exceptional and far-reaching matters with Juusela, Tom Berglund, Georg Ehrnrooth respect to the scope and nature of Sampo and Christoffer Taxell. Group. The Board of Directors of Sampo plc In addition, the Board regularly eval- convened 13 times in 2005. The average uates its own activities and cooperation attendance of Board members at meetings with the Group’s management. was 94.23 per cent. The Board elects the CEO and executives of Sampo Group, releases them Executive Committee and other from their duties, and decides on their Committees Appointed by the Board terms and conditions of employment and on other compensation. In addition, the The Board may appoint committees, ex- Board confirms the Group’s staff plan- ecutive committees and other permanent ning targets and monitors their fulfilment, or fixed-term bodies for duties assigned by determines the grounds for the Group’s the Board. The Board confirms the Char- compensation system and decides on other ter of Sampo’s committees and Executive far-reaching matters concerning the staff. Committee, and also the guidelines and authorisations given to other bodies ap- Election and terms of office pointed by the Board. of Board members The Board has a Nomination and According to Sampo’s Articles of Compensation Committee, an Audit Association, the company’s Board of Committee, and a Risk Control Commit- Directors comprises no fewer than three tee, whose members it appoints from its and no more than ten members elected midst in accordance with the charters of by shareholders at the Annual General the respective committees. In addition the Meeting. The Annual General Meeting Board has appointed an Asset and Liabil- of 2005 decided to elect eight members ity Committee (to monitor the Group’s to the Board until the close of the Annual balance sheet risks), a Credit Committee General Meeting to be held in 2006. The (to monitor credit risks) and an Invest- term of office of the Board members is ment Committee (to monitor investment one year. The members of the Board annu- risks). The Board has also appointed the ally elect a Chairman and Vice Chairman members of these committees.

Sampo Group | Sampo Group Review 2005 CORPORATE GOVERNANCE

Sampo Group’s The Group MD Committee com- Executive Committee prises Björn Wahlroos, Kari Stadigh, The Board of Directors has appointed Mika Ihamuotila, Torbjörn Magnusson Sampo Group’s Executive Committee and and Patrick Lapveteläinen. Ilona Ervasti- a Group MD Committee to the Group Vaintola acts as the Group MD Commit- Executive Committee, which supports the tee’s secretary. CEO in preparing matters to be handled In 2005, the Executive Commit- by the Executive Committee. tee convened regularly, once a month, at Sampo Group’s Executive Commit- the request of the CEO. The Group MD tee supports the CEO in the prepara- Committee to the Group Executive Com- tion of strategic issues relating to Sampo mittee, which assists the Executive Com- Group, in the handling of operating mat- mittee, normally met once a week, except ters that are significant or involve ques- when the Executive Committee convened tions of principle, and in ensuring a good in its entirety. internal flow of information. The Executive Committee addresses Committees Appointed especially the following: Sampo Group’s by the Board strategy, budget, large purchases and Nomination and projects, the Group’s structure and organi- Compensation Committee sation, as well as key strategic issues per- The Nomination and Compensation taining to administration and personnel. Committee is entrusted to prepare pro- The composition of the Group’s Ex- posals for Sampo’s Annual General Meet- ecutive Committee is as follows: ing on the composition of the Board, the Björn Wahlroos, Group CEO compensation of Board members and the principles on which this compensation is Kari Stadigh, Group Deputy CEO determined. The Committee consults the Ilona Ervasti-Vaintola, Group Chief largest shareholders in these matters. Counsel, Principal Attorney The Committee is also responsible Ilkka Hallavo, Executive Vice President, for preparing proposals for Sampo’s Board Head of Corporate Banking, Deputy on the composition and chairmen of the Managing Director of Sampo Bank plc Board’s committees, on the appointment Line Hestvik, Head of Private business of a Sampo Group´s CEO and the mem- area, If P&C bers of Sampo Group’s Executive Com- mittee, and on the principles by which the Mika Ihamuotila, President and CEO of members of the Executive Committee are Sampo Bank plc to be compensated and their compensa- Peter Johansson, Group CFO tion. As authorised by the Board of Direc- Patrick Lapveteläinen, Group CIO tors, the Committee also decides on the Torbjörn Magnusson, CEO of If P&C compensation of the members of the Ex- Insurance Holding Ltd (publ) ecutive Committee, excluding the Group’s Ivar Martinsen, Head of Commercial CEO and Deputy CEO, as well as on the business area, If P&C appointment, employment conditions and other salaries of Sampo Group’s Head of Petri Niemisvirta, Managing Director of Internal Audit, and on the principles by Sampo Life Insurance Company Limited which Sampo Group’s staff are to be com- Maarit Näkyvä, Executive Vice President, pensated. In addition, the Committee is Head of Retail and Private Banking, responsible for preparing proposals for the Sampo Bank plc Board on issues relating to the develop- Ricard Wennerklint, CFO, If P&C ment of good corporate governance and

10 Sampo Group | Sampo Group Review 2005 Sampo´s Governance Structure

Shareholders

Annual General Meeting Order of election

Board of Board activities Directors Nomination and Risk Control External auditors Audit Committee Compensation Committee Committee

Internal control

Internal audit CEO

Compliance Executive Committee Asset and Liability Credit Committee Investment Committee Group MC Committee Committee Insider administration

used in confirming the criteria and proc- who do not hold management positions in Chairman of the Board acts as the Chair- esses for the Board’s self-evaluation. Sampo and are independent of the compa- man of the Risk Control Committee. Also The Nomination and Compensation ny. Also participating in the meetings of the participating in the meetings of the Com- Committee is composed of the Chairman Committee are the Auditor, the CEO, the mittee are the CEO, the respective chair- of the Board (who acts as the Commit- CFO, the Group’s Chief Counsel and the men of the Group’s Asset and Liability tee’s Chairman), the Vice Chairman of Head of Internal Audit. The Audit Com- Committee, Investment Committee and the Board and one member elected from mittee comprises Jyrki Juusela (Chairman), Credit Committee, the member of the among the members of the Board. The Tom Berglund and Christoffer Taxell. In Group’s Executive Committee responsible Nomination and Compensation Commit- addition, Tomi Englund, Björn Wahlroos, for risk control, the Head of Risk Control tee comprises Olli-Pekka Kallasvuo, Jyrki Peter Johansson, Ilona Ervasti-Vaintola and and any other people elected at the discre- Juusela and Georg Ehrnrooth, and met six Pentti Mattila attend the Audit Commit- tion of the Board. The Risk Control Com- times in 2005. tee’s meetings. The Audit Committee met mittee comprises Olli-Pekka Kallasvuo Audit Committee three times in 2005. (Chairman), Tom Berglund, Anne Brunila Risk Control Committee and Matti Vuoria. Also participating in The Audit Committee is responsible for the meetings are Björn Wahlroos, Kari overseeing Sampo Group’s internal audit The Board of Directors has appointed a Stadigh, Ilkka Hallavo, Mika Ihamuotila, and the actions of the auditors under Risk Control Committee to control Sampo Peter Johansson, Patrick Lapveteläinen the laws of Finland, the authenticity of Group’s risks at the Group level. The Risk and Petri Viertiö. The Risk Control Com- the Group’s financial accounts and the Control Committee is responsible for mittee met four times in 2005. auditors’ professional competence and supervising the preparation of and compli- independence, and for assessing compliance with Sampo Group’s risk manage- Other Committees ance with laws and regulations within ment principles and other related guide- Asset and Liability Committee, Credit Sampo Group. The Audit Committee also lines, supervising Sampo Group’s risks and Committee and Investment Committee prepares the proposal to be made to the risk accumulations and the quality and Annual General Meeting on the election scope of risk management, and monitor- The Asset and Liability Committee is of the auditor and the auditing fees, and ing the fulfilment of risk policies, the use responsible for preparing the Group’s also monitors the auditors’ invoicing in of limits and the development of risks and balance risk policy for approval by the the way it sees fit. The Audit Committee profit in the various business areas. Board, for preparing the banking book meets at least once every half-year. The Risk Control Committee com- and trading limits and authorisations for The Board of Directors’ Audit Com- prises the Chairman of the Board and two the Boards of Group companies, and for mittee comprises at least three (3) members or three members elected from among the monitoring the use of limits and au- elected from among those Board members independent members of the Board. The thorisations and the Group’s consolidated

Sampo Group | Sampo Group Review 2005 11 CORPORATE GOVERNANCE

liquidity. The Asset and Liability Com- the Board of Directors. The Group CEO Compensation of the Managing mittee comprises Patrick Lapveteläinen ensures the legal compliance of Sampo’s Director and other Executives (Chairman), Martti Porkka, Kai Brander, accounting and the trustworthy organisa- The Board of Directors decides on the Aki Palo, Markku Pehkonen, Risto tion of asset management. terms of employment and compensa- Tornivaara, Jyrki Appelqvist, Pekka Kai- The period of notice for terminating tion of the CEO and other executives on nulainen and Petri Viertiö, the last three the service contract of the CEO of Sampo Sampo Group’s Executive Committee being expert members. Group is six months. In addition to re- on the basis of a proposal made by the The Credit Committee is responsible ceiving salary for the period of notice, the Nomination and Compensation Com- for preparing the Group’s credit policy for CEO will be entitled to severance committee. However, the Nomination and approval by the Board, preparing credit pensation of 18 months’ full salary (not Compensation Committee can decide, risk limits and authorisations for the including bonuses), provided the service upon authorisation by the Board of Direc- Boards of Group companies, monitoring contract has been terminated by Sampo. tors, on the salaries of the members of the the use of credit risk limits and authorisa- Group Executive Committee, excluding tions, and making credit decisions in cases Compensation the Group CEO and Deputy CEO. requiring the highest level of authority. Compensation of the members Principles of compensation system The Credit Committee comprises Ilkka of the Board of Directors Hallavo (Chairman), Jukka Apajalahti, In addition to receiving monthly sala- Jarmo Lankinen, Patrick Lapveteläinen According to Sampo’s Articles of Associa- ries, executives who are members of the and Aki Palo (expert member). tion, the Annual General Meeting decides Group’s Executive Committee are The Investment Committee is re- on the compensation of the members of participants in the Group’s profit bonus sponsible for preparing the Group’s in- the Board of Directors. system which is decided upon separately vestment policy for approval by the Board, The Chairman, the Vice Chairman each year. The criteria used in determining preparing investment decision authorisa- and the other members of the Board will the profit bonus are the Group’s result, the tions for the Boards of Group companies, be paid the following fees monthly until business area’s result and the individual and monitoring the use of limits and the close of the Annual General Meet- performance of the person in question. authorisations. The Investment Commit- ing in 2006: the Chairman EUR 4,800, The maximum profit bonus that can tee comprises Kari Stadigh (Chairman), the Vice Chairman EUR 3,850, and the be paid for 2005 to executives who are Patrick Lapveteläinen, Sirpa Mannila, other members of the Board EUR 2,900. members of the Executive Committee is Vesa Nurminen, Ulla Kangas and Petri In addition, all members of the Board will an amount corresponding to nine-months’ Viertiö (expert member). be paid EUR 480 for each meeting of the salary. full Board or one of its committees. Mem- With the exception of the Chief Ex- Chief Executive Officer bers of the Board will be paid a daily travel ecutive Officer, the members of the Group allowance corresponding to the maximum, Executive Committee are also participants The company has a Managing Director valid, tax-exempt travel allowance per- in the long-term incentive systems for who is simultaneously the CEO of Sampo mitted by the tax authorities and will be Sampo plc’s executive management for the Group. The Board of Directors elects and reimbursed for accommodation and travel years 2003, 2004 I and II, and 2005 I and releases the CEO, and decides on the expenses. Board members employed by II. The terms of the incentive systems are terms of employment and other com- the company do not receive separate com- available on Sampo’s web pages at www. pensation. The Managing Director of the pensation for Board work. sampo.com. company and the CEO of Sampo Group Members of the Board of Directors All the options of the year 2000 Sam- is Björn Wahlroos. were paid a total of EUR 298 810 for their po option programme have been subject The CEO of Sampo Group is in work on the Board and its committees in to trading in the Helsinki Stock Exchange charge of the daily management of Sampo 2005. The members of the Board did not since 2 January 2004. subject to the instructions and control of receive any other benefits and did not par- The Group’s Chief Executive Of- the Board of Directors. The Group CEO ticipate in Sampo’s option programmes. ficer will be paid long-term compensation is empowered to take extraordinary and based on his employment contract, the broad-ranging actions, taking into ac- payment of which the Board will decide count the scope and nature of Sampo’s separately in compliance, as applicable, operations, only upon authorisation by with the principles of the long-term in-

12 Sampo Group | Sampo Group Review 2005 centive system for Sampo’s executive Insider Administration management. Sampo’s Board of Directors has approved The CEO was paid a total of EUR Sampo Group’s Guidelines for Insiders. 2,324,000 in salaries and profit bonuses These comply with the Guidelines for for 2005. The Deputy to the CEO was Insiders issued by the Helsinki Stock Ex- paid a total of EUR 1,445,000 in salaries change, the Guidelines for Trading of the and profit bonuses. Finnish Association of Securities Dealers The retirement age of the members and the Finnish Association of Mutual of the Group Executive Committee is 60 Funds, the Insider Guidelines for Invest- years, and the pension paid corresponds to ment Activities issued by the Federation the full amount permitted under the Em- of Finnish Insurance Companies and the ployees’ Pensions Act (TEL). Standards of the Financial Supervision Authority. Sampo Group’s Guidelines External Auditors for Insiders are stricter than the above- Ernst & Young Oy mentioned norms on matters that concern Authorised Public Accountants the Group Executive Committee, other corporate executives and other specifi- Responsible auditor cally-named persons, as these persons Tomi Englund, APA must ask for separate written permission in advance for each share-related securities The total fees paid to the auditor for transaction they make. services rendered and invoiced were EUR The following companies in Sampo 1,908,391. In addition, Ernst & Young Group keep their own insider registers: Oy were paid fees for non-audit services Sampo plc, Sampo Bank plc, Mandatum rendered and invoiced totalling EUR Asset Management Ltd, Sampo Fund 368,662. Management Ltd, Mandatum Securi- ties Ltd, Mandatum & Co Ltd, 3C Asset Internal Audit Management Ltd and Arvo Asset Man- Sampo’s Internal Audit is a function agement Ltd. independent of business operations which evaluates the sufficiency and effectiveness Sampo plc’s insider guidelines and insider of the internal control system and the register may be viewed on the Internet at quality with which tasks are performed in www.sampo.com/english, see Investor Sampo Group. The Internal Audit reports Relations/Shares and Options/Insiders. to the CEO. The Internal Audit has been organised to correspond with the business organisation. The Audit Committee of Sampo’s Board annually approves the Internal Audit’s operating plan. The Internal Au- dit reports on the audits performed to the CEO, the Audit Committee and the Group Executive Committee. Company- specific audit observations are reported to the respective companies’ executive bodies and management.

Sampo Group | Sampo Group Review 2005 13 Sampo Group, 31 December, 2005

Internal Audit Group CEO Pentti Mattila Björn Wahlroos

Communications Chief Counsel Hannu Vuola Ilona Ervasti-Vaintola

Investor Relations Group Deputy CEO Jarmo Salonen Kari Stadigh

Financial Control and Treasury Banking Long-term P&C Insurance Corporate Development and Trading Mika Ihamuotila Savings Torbjörn Magnusson Peter Johansson Patrick Lapveteläinen

Risk Management Group Treasury Retail and Private Life Insurance Private Petri Viertiö Martti Porkka Banking Petri Niemisvirta Line Hestvik Maarit Näkyvä

Rating Priority Corporate Banking Asset Management Commercial Knut-Arne Alsaker Investments Ilkka Hallavo Carlo Eräkallio Ivar Martinsen

Corporate Finance Mutual Funds Industrial Kari Järvinen Kimmo Laaksonen Morten Thorsrud

Banks in the Brokerage Baltics Baltic countries Sampsa Laine Timo Vuorinen Georg Schubiger

CFO Ricard Wennerklint

Chief Legal Counsel Tom Melbye Eide

Business Support Jan Svensson

14 Sampo Group | Sampo Group Review 2005 Main Legal Structure of Sampo Group, 31 December, 2005

Sampo plc (Finland)

Banking and Investment Services Life Insurance P&C Insurance 100 100 100

Sampo Bank plc Sampo Life Insurance Company If P&C Insurance Holding Ltd (Finland) Limited (Finland) (Sweden)

100 AB Sampo bankas 100 AS Sampo Elukindlustus 100 If P&C Insurance Ltd (Lithuania) (Estonia) (Sweden)

100 AS Sampo Pank 100 AAS Sampo Dziviba 100 If P&C Insurance Company Ltd (Estonia) (Latvia) (Finland)

100 AS Sampo banka 100 AB SAMPO gyvybes draudimas 100 AS If Eesti Kindlustus (Latvia) (Lithuania) (Estonia)

100 Sampo Housing Loan Bank plc 100 If Livförsäkring AB 100 AAS If Latvia (Finland) (Sweden) (Latvia)

100 Realty World Ltd 100 UAB If Draudimas (Finland)** (Lithuania)

100 Sampo Fund Management Ltd If branch offices: (Finland) Norway, Denmark, others

100 Mandatum Asset Management Ltd (Finland) Primasoft Oy (Finland) *

62.00 Arvo Asset Management Ltd (Finland) * Sampo Group holds 40% of the shares of Primasoft, and 60% of the voting rights. 60.15 3C Asset Management Ltd The corresponding figures for both Sampo (Finland) plc and Sampo Bank plc are 20% and 30%. Banking and Investment 81.25 Mandatum Securities Ltd Services (Finland) ** Sampo Bank owns the central unit Life Insurance of the Realty World real estate agency 67.80 Mandatum & Co Ltd chain. The sales outlets are limited li- (Finland) ability companies owned by independent P&C Insurance entrepreneurs. Parent company and others

Interest in share capital, %

Sampo Group | Sampo Group Review 2005 15 Board of Directors

Chairman Olli-Pekka Kallasvuo, born 1953

President and COO, Nokia Corporation Member of the Board of EMC Corporation He was appointed to the Board of Directors of Sampo plc and became Chairman on 5 April, 2001 He holds 30,000 Sampo plc shares directly or through a controlled company

Vice Chairman Jyrki Juusela, born 1943 Olli-Pekka Jyrki

Chairman of Varma Mutual Pension Insurance Company, Chairman of the Foundation of Technology (until 31 December, 2005) and member of the Boards of the Millennium Price Foundation, Inmet Mining Corporation, the Technology Industries of Finland and the Technology Industries of Finland Centennial Foundation He transferred to the Board of Directors of Sampo plc from the Supervisory Board on 25 May, 2000 He holds 10,905 Sampo plc shares Tom directly or through a controlled company Anne

Tom Berglund, born 1951 Professor, Swedish School of Economics and Business Administration (Helsinki) He was appointed to the Board of Directors of Sampo plc on 25 May, 2000 He holds no Sampo plc shares Anne Brunila, born 1957 Georg Ehrnrooth, born 1940 Director-General, Ministry of Finance Chairman of Assa Abloy AB (publ), Vice (Finland) (until 31 October, 2005) Chairman of Rautaruukki Corporation, Finnish Forest Industries Federation and member of the Boards of Nokia (President from 1 January, 2006) Corporation, Karl Fazer Oy Ab and Sandvik AB (publ) Member of the Boards of Mehiläinen Oyj, the Finnish National Opera Foundation He was appointed to the Board of and the Finnish Fund for Industrial Directors of Sampo plc on 26 June, 1992 Cooperation Ltd (Finnfund) He holds 19,600 Sampo plc shares She was appointed to the Board of directly or through a controlled company Directors of Sampo plc on 9 April, 2003 She holds no Sampo plc shares

16 Sampo Group | Sampo Group Review 2005 Christoffer Taxell, born 1948 Chancellor, Åbo Akademi University Chairman of the Confederation of Finnish Industries EK, Finnair Plc, Åbo Akademi University Foundation and Föreningen Konstsamfundet, member of the Investment Committee of the Society of Swedish Literature in Finland, and member of the Boards of Nordkalk Corporation, Raisio plc and Stockmann plc He transferred to the Board of Directors of Sampo plc from the Supervisory Board Georg Christoffer on 1 January, 1998 He holds 1,000 Sampo plc shares directly or through a controlled company

Matti Vuoria, born 1951 CEO, President of Varma Mutual Pension Insurance Company Member of the Boards of Danisco A/S (Denmark), Stora Enso Oyj, Wärtsilä Corporation and the Central Chamber of Commerce of Finland, Chairman of Winwind Oy and the Finnish Pension Alliance TELA, and member of the Board of the Federation of Finnish Insurance Companies Matti Björn He was appointed to the Board of Directors of Sampo plc on 7 April, 2004 He holds 20,000 Sampo plc shares directly or through a controlled company

Björn Wahlroos, born 1952 Group CEO, Managing Director of Sampo plc Member of the Board of Varma Mutual Information as on 31 December, 2005. Pension Insurance Company The CVs of members of the Board of Directors He was appointed to the Board of can be viewed on the Internet at www.sampo. Directors of Sampo plc on 5 April, 2001 com, see Sampo Group/Corporate Governance. He holds 11,839,890 Sampo plc shares directly or through a controlled company

Sampo Group | Sampo Group Review 2005 17 Group Executive Committee

Members of the Group Executive Committee for all of 2005 were Björn Wahlroos, Kari Stadigh, Ilona Ervasti- Vaintola, Ilkka Hallavo, Mika Ihamuotila, Peter Johansson, Patrick Lapveteläinen, Petri Niemisvirta, Maarit Näkyvä and Torbjörn Magnusson. Ivar Martinsen and Ricard Wenner- klint were appointed members of the Executive Committee on 25 January 2005, and Line Hestvik on 22 June 2005, replacing Gunnar Rogstad. Personal information as on 31 December 2005. Björn Wahlroos, born 1952 Group CEO, Managing Director of Sampo plc Maarit, Peter, Line Chairman of the Board of Sampo Bank plc Member of the Board of Varma Mutual Pension Insurance Company He holds 11,839,890 Sampo plc shares directly or through controlled company Options (2000 programme): -

Kari Stadigh, born 1955 Group Deputy CEO, Chairman of the Boards of If P&C Insurance Holding Ltd (publ) and Sampo Life Insurance Company Limited Chairman of the Boards of Kaleva Mutual Insurance Company, Aspo Plc and Alma Björn, , atrick Media Corporation Kari Ilona, P He holds 105,328 Sampo plc shares directly or through controlled company Options (2000 programme): 40,000

Ilona Ervasti-Vaintola, born 1951 Ilkka Hallavo, born 1956 Mika Ihamuotila, born 1964 Group Chief Counsel Executive Vice President, Head of President and CEO of Sampo Bank plc Member of the Boards of OMX Corporate Banking, Deputy to President Chairman of the Board of the Finnish Exchanges Ltd, Stockholmsbörsen AB, of Sampo Bank plc Bankers’ Association, and member of the Fiskars Corporation and the Finnish Chairman of the Board of MB Equity Boards of the Confederation of Finnish Literature Society, Chairman of the Legal Partners Oy, member of the Board of MB Industries, Elisa Corporation and HYY Committee of the Central Chamber of Rahastot Oy, member of the Executive Group Ltd Commerce of Finland and the Delegation Committee of the Customer Advisory He holds 305,138 Sampo plc shares of the Investors’ Compensation Fund, Office of the Banking Sector, and member directly or through controlled company Vice Chairman of the Security Fund of of the Supervisory Boards of Finpro ry Commercial Banks and Postipankki Ltd and Luottokunta Options (2000 programme): - and Member of the Delegation of the He holds 3,799 Sampo plc shares directly Deposit Guarantee Fund or through controlled company She holds 301,019 Sampo plc shares Options (2000 programme): 30,000 directly or through controlled company Options (2000 programme): 30,000

18 Sampo Group | Sampo Group Review 2005 Torbjörn Magnusson, born 1963 CEO of If P&C Insurance Holding Ltd (publ) Vice Chairman of the Board of the Swedish Insurance Federation He holds no Sampo Plc shares Options (2000 programme): -

Ivar Martinsen, born 1961 Head of Commercial Business Area, If P&C He holds no Sampo Plc shares Options (2000 programme): -

Petri Niemisvirta, born 1970 Ricard, Ilkka, Torbjörn Managing Director of Sampo Life Insurance Company Limited Member of the Boards of the Federation of Finnish Insurance Companies and the Consumers’ Insurance Office He holds 9,299 Sampo plc shares directly or through controlled company Options (2000 programme): 40,000

Maarit Näkyvä, born 1953 Executive Vice President, Head of Retail and Private Banking, Sampo Bank plc Chairman of the Board of Kiinteistömaa- ilma Oy (Realty World Ltd) Ivar, Petri, Mika Member of the Board of Kesko Corporation She holds 3,228 Sampo plc shares directly or through controlled company Options (2000 programme): 40,000

Peter Johansson, born 1957 Patrick Lapveteläinen, born 1966 Line Hestvik, born 1969 Group CFO Group CIO Head of Private Business Area, If P&C Member of the Boards of Meridea Member of the Board of Bravida ASA Member of the Board of the Norwegian Financial Software Oy and the Deposit He holds 98,855 Sampo plc shares Financial Services Association Insurance Fund of the Commercial Banks directly or through controlled company He holds no Sampo Plc shares and Postipankki Oy Options (2000 programme): 38,000 Options (2000 programme): - He holds 11,370 Sampo plc shares directly or through controlled company Ricard Wennerklint, born 1969 Options (2000 programme): 30,000 CFO, If P&C He holds no Sampo Plc shares Options (2000 programme): -

Sampo Group | Sampo Group Review 2005 19 Group Staff

The average number of Sampo Group’s staff was 11,730 in 2005, compared with 11,898 in 2004. The Group staff was divided as follows: banking and investment services (4,201 employees), life insurance (370 employees), P&C insurance (6,592 employees) and the holding company (567 employees). You may also read the staff reviews in the parts of the Sampo Annual Report entitled Banking and Long-term Savings, and If P&C Insurance.

Sampo Group has operations in seven countries, each with its own language and currency. The picture shows Irene Kärnä, Service Advisor (front), Arto Laatikainen, Network Support (on the right) and Tuija Nivala (back left) and Anna-Maija Källi (back right) from Finland’s If P&C Insurance Call Center.

Finland: Latvia: 52% of total employees 1% of total employees Banking and investment services: 3,344 Banking and investment services: 26 Life insurance: 246 Life insurance: 32 P&C insurance: 1,939 P&C insurance: 89 Holding company: 567 Lithuania: Sweden: 4% of total employees 16% of total employees Banking and investment services: 295 P&C insurance: 1,818 Life insurance: 32 P&C insurance: 148 Norway: 15% of total employees Other: P&C insurance: 1,695 1% of total employees Banking and investment services: 36 Denmark: Life insurance: 23 3% of total employees P&C insurance: 54 P&C insurance: 397

Staff numbers are presented in FTE (full- Estonia: time equivalent) figures. In other words, the 8% of total employees number of part-time employees has been Banking and investment services: 500 converted, taking their working hours into ac- Life insurance: 37 count, to correspond with a certain number of P&C insurance: 452 full-time employees.

20 Sampo Group | Sampo Group Review 2005 Corporate Responsibility

Sampo Group is rooted deep in Nordic the safety of pedestrians, If donated reflec- Although the aim is to report on corpo- culture and in this region’s common tradi- tive vests to Finnish day-care centres and rate responsibility matters comprehen- tions of responsible business management. Sweden’s Sundsvalls IBF, the largest girls’ sively for the whole Group, the diversity As a listed company, Sampo plc has floorball club in the world. Due to the of the businesses necessitates reporting the responsibility to act in the best inter- multi-car pile-ups on Finnish highways in through separate channels. The key values ests of its shareholders, in compliance with March 2005 – the worst in the history of of corporate responsibility (ethicality, legislation, and in accordance with sound the country’s road traffic – driving-related loyalty, transparency and enterprise) and business practices. Sampo Group’s core risks were communicated more intensively. the policy of sustainability relate to the businesses – P&C insurance, banking and Sampo Group supported relief operations entire Sampo Group, but their application long-term savings – are all activities that in the areas affected by the Asian tsunami may vary depending on the business and are dependent on building and maintain- on December 26, 2004 by donating EUR regional circumstances. ing the trust of customers. 100,000 to the Finnish, Swedish, Norwe- The Corporate Responsibility Steer- Sampo’s operating environment re- gian and Danish Red Cross organisations. ing Group met five times during the year mained fairly stable in 2005. With respect and considered the corporate responsibil- to corporate responsibility, discussion in A new equality plan and an update of ity indicators. Steps were taken towards the Nordic countries focused on defin- the sustainable development policy better coverage of Sampo Group’s P&C ing what constitutes appropriate contacts At year end, Sampo’s banking and long- insurance activities in reporting responsi- or corruption in relationships between term savings businesses introduced a bility issues. companies and the authorities. Yet again, new equality plan that complies with the Corporate responsibility reviews for however, Transparency International rated Finnish equality law and creates further Sampo Group businesses are contained in the Nordic countries as among the least opportunities to improve staff wellbeing. the Banking and Long-Term Savings and corrupted in the world, while the Baltic An active, competent staff is a key com- If P&C reports for 2005. countries also improved their standings. petitive tool for Sampo. Ethical customer Furthermore, the quality of environmental service not only benefits customers but Corporate responsibility is also discussed management in the Nordic countries was also serves Sampo’s interests in the form of more extensively, complete with environ- rated highly, and Finland was judged as solid, long-lasting customer relationships. mental indicators, in a separate corporate the world’s most environmentally friendly Equal treatment of employees regardless responsibility report and on our Internet pages country in a study published by the Yale of sex, age or other factors is pivotal in at www.sampo.com. and Columbia universities (USA) in Janu- establishing a fair and motivating work ary 2005. environment. A staff survey conducted in 2005 showed that job satisfaction had Extensive scope continued to increase. The scope of corporate responsibility Sampo’s Board of Directors reviewed extends beyond shareholders and custom- the sustainable development policy and ers, however. Sampo seeks ways of doing made minor additions in it. The policy ac- business that take the interests of all stake- knowledges the significance of the compa- holders into account without compromis- ny’s stakeholders and profitable operation ing those of the owners. Sampo Bank’s as the basis for sustainable development. Finnish branches continued to develop the “Green Light” project initiated in 2004. Standardisation of Group This project has the dual aims of protect- operations proceeded ing the environment by reducing electric- As a result of Sampo plc’s acquisition of ity consumption and paper usage, while at the entire stock of If in 2004, the Group the same time cutting costs. At the local gained a new core business area and level Sampo provided, for the third year expanded its activities to Sweden, Norway running, financial support for projects and Denmark. P&C insurance is run as a at comprehensive and upper secondary separate business, because it has no major schools in Finland – in 2005 to promote synergies with the other businesses. How- the advancement of manual skills. If P&C, ever, investment activities and Group- on the other hand, focused its support on wide functions such as financial reporting the promotion of traffic safety. To improve were centralised and standardised in 2005.

Sampo Group | Sampo Group Review 2005 21 Shares and Shareholders

Shares and votes value of which was EUR 968,030.86. 2001. All the staff permanently employed According to Sampo plc’s Articles of Likewise, options from Sampo’s 2000 by Sampo Group and the Kaleva Mutual Association, the share capital can be at option programme were exercised to Insurance Company were entitled to minimum EUR 30,105,638.84 and at subscribe for 1,800,250 A shares, the subscribe, and around 72 per cent of those maximum EUR 120,422,555.30. On 31 combined counter book value of which employed at the time utilised this right. December, 2005, the company’s share cap- was EUR 302,780.32. In total, these The warrants, whose subscription period ital was EUR 96,088,842.74, divided into subscriptions increased the number of ended on 31 May, 2005, could each be 571,318,315 shares, of which 570,118,315 shares by 7,555,900 shares. The new shares exercised to subscribe for five Sampo A were A shares and 1,200,000 were B were admitted for trading on the Helsinki shares. shares. The shares have no nominal value. Stock Exchange following the entry of During the whole subscription pe- The counter book value of the shares is each lot in the Trade Register. riod, 3,272,500 warrants were exercised, EUR 0.17 (not an exact value). Each A giving entitlement to a total of 16,362,500 Authorisations granted to share has 1 vote and each B share has 5 new shares. The subscribed shares repre- the Board and their use votes at General Meetings. The A shares sented 2.9 per cent of the share capital at have been quoted on the Helsinki Stock The Annual General Meeting of 11 April the end of 2005 and 2.8 per cent of the Exchange since 1988. All the B shares are 2005 granted the Board of Directors votes. owned by the Kaleva Mutual Insurance authorisation, valid until 11 April 2006, Year 2000 option programme Company. In addition, Sampo’s year 2000 to buy back Sampo shares. The maximum options are quoted on the main list of the amount of A shares that can be bought On 29 September, 2000, an Extraordinary Helsinki Stock Exchange. The subscrip- back is five per cent of the company’s General Meeting of Sampo decided to tion period for Sampo’s 1998 warrants share capital or of the number of votes offer options without consideration to the ended on 31 May, 2005, and their quota- carried by all shares. Shares can be bought management, middle management and tion on the Helsinki Stock Exchange back either by an offer made to all holders other key personnel of Sampo and its sub- ended on 24 May, 2005. of A shares in proportion to their holdings sidiaries and to a wholly-owned subsidiary B shares can be converted into A and on equal terms determined by the specified by the Board of Directors. shares upon the demand of their holder. Board, or through public trading on the A total of 5,200,000 options were At the end of the financial year, Sam- Helsinki Stock Exchange, in which case issued, of which 2,600,000 were desig- po plc held 7,000,000 of its own shares. the shares will not be bought in propor- nated as A options and 2,600,000 as B Other Group companies did not hold any tion to the shareholders’ holdings. Shares options. Each option entitles its holder shares in the parent company, but Satura can only be bought back to be cancelled. to subscribe for five Sampo A shares. The Oy, a wholly owned subsidiary of Sampo On 22 June, 2005, the Board of Di- share subscription period for the options plc, held 1,030,250 of the 2000 options. rectors decided to buy back up to 7 million will end on 31 January, 2007 and the share Sampo A shares through public trading subscription price is EUR 6.74. If the “Sampo Uudet” share category on the Helsinki Stock Exchange. The Annual General Meeting approves the Because the Sampo A shares subscribed share buy-backs started on 29 June 2005 Board’s proposed dividend distribution for for on the basis of Sampo plc’s warrants or and continued until the maximum num- 2005, the subscription price will be re- options after 31 December 2004 entitled ber was reached on 13 July 2005. EUR duced to EUR 6.14. their holders to dividends only after the 87.7 million was used for acquisition of At the end of the year under review, dividend distribution decided upon for the shares. The A shares held by Sampo 4,838,950 of the 2000 warrants were still 2004, a new share category called Sampo plc on 31 December, 2005 correspond to unexercised. If share subscriptions are Uudet (Sampo New) was listed on the approximately 1.2 per cent of the total made with the unexercised options, Sam- main list of the Helsinki Stock Exchange. number of shares and votes. The shares po’s share capital can increase by a maxi- The Sampo Uudet share category was bought back corresponded to EUR 1.2 mum of EUR 4,069,264.92, which equals combined with the Sampo A share after million of share capital on 31 December, approximately 4.2 per cent of the share the dividend distribution in April 2005. 2005. capital at the end of 2005. Changes in share capital 1998 bond with warrants Shareholders During the year under review, warrants On 22 May, 1998, Sampo issued a bond There were 57,547 registered sharehold- from Sampo’s 1998 option programme with warrants valued at approximately ers on 31 December 2005, which is an were exercised to subscribe for 5,755,650 EUR 1.1 million. The bond, which did increase of 1,228 over the previous year A shares, the combined counter book not pay interest, was repaid on 22 May, end. 1.38 per cent of all shares had not

22 Sampo Group | Sampo Group Review 2005 been transferred to the book-entry securi- 2, Section 9 of the Securities Markets Act number of Sampo shares on 25 October, ties system. The holdings of nominee-reg- (proportion of voting rights indicated in 2005. istered and foreign shareholders increased parentheses): - According to a disclosure received to 48.9 per cent (37.0) of the share capital - The Finnish Government’s total on 16 November 2005, the holding of and 48.5 per cent of the votes (36.7). Al- holding of Sampo A shares decreased to Sampo A shares by Barclays plc and funds most all of the foreign shareholders have 14.01 (13.89) per cent on 18 February, managed by it decreased to 4.95 (4.90) per nominee-registered holdings. 2005. At the same time, the Finnish Gov- cent of all Sampo shares. At the end of the year, the members ernment agreed not to sell its remaining Annual General Meeting of Sampo’s Board of Directors includ- Sampo shares during the 90 days that fol- ing the Chief Executive Officer owned, lowed the disclosure. Sampo plc’s Annual General Meeting will directly or indirectly, 11,921,395 Sampo - Varma Mutual Pension Insurance be held on Wednesday 5 April, 2006 at 4 shares. Their combined holdings consti- Company’s total holding of Sampo A p.m., at Kulttuuritalo, address Sturenkatu tuted 2.1 per cent of the share capital and shares decreased to 14.95 (14.83) per cent 4, 00510 Helsinki. The listing of persons votes. on 5 July, 2005. who have registered for the meeting will During the year under review, Sampo - The holding of Sampo A shares by commence at 2.30 p.m. received the following notifications of Barclays plc and funds managed by it in- To be entitled to participate in the changes in holdings pursuant to Chapter creased to 5.00 (4.96) per cent of the total AGM, shareholders must be registered

Increases and decreases in share capital 2001–2005

share capital S subscription Terms of subscription Number after increase/ Mode of increase/ period/ or subscriber of new decrease decrease Registration or reason for decrease shares eur million *) Exchange offer consideration 7 February, 2001 Mandatum shareholders 4,754,255 91.46 A shares Exchange offer consideration 23 February, 2001 Mandatum shareholders 2,362,738 93.44 A shares Bond with Warrants, 1998, 28 November, 2001 Warrant conversion 38,550 93.45 A shares Bond with Warrants, 1998, Five conversions Warrant conversion 664,750 93.56 A shares in 2002 Decrease in share capital 11 April, 2003 Cancellation of shares bought back -2,434,400 93.15 (2,434,400 A shares) Bond with Warrants, 1998, Three conversions Warrant conversion 66,100 93.16 A shares in 2003 Bond with Warrants, 1998, One conversion Warrant conversion 281,250 93.21 A shares in 2004 Bond with Warrants, 1998 Seven conversions Warrant and Option 9,561,200 94.82 and Options 2000, A shares in 2004 conversion Bond with Warrants, 1998, One conversion Warrant conversion 2,018,850 95.16 A shares in 2005 Bond with Warrants, 1998 Six conversions Warrant and Option 7,555,900 96.09 and Options 2000, A shares in 2005 conversion Bond with Warrants, 2000, One conversion Option conversion 382,200 96.15 A shares in 2006**)

*) Rounded out **) Subscriptions during the previous year

Sampo Group | Sampo Group Review 2005 23 Shares and shareholders

Shareholder groups, 31 December 2005 in the shareholder register maintained by In previous years, dividends have (A and B shares) Finnish Central Securities Depository Ltd been distributed as follows (figures are On joint Companies 3.9% (Suomen Arvopaperikeskus Oy) by 24 split-corrected): account 1.4% Financial institutions and March, 2006. Asset managers must reg- 2001 EUR 0.75 insurance companies 6.2% ister nominee-registered shareholders in 2002 EUR 0.35 Foreign the Sampo shareholder register created for 2003 EUR 1.50 ownership Public the AGM by Finnish Central Securities and nominee- corporations 28.5 % 2004 EUR 0.20 Depository Ltd. registered 48.9% 2005 EUR 0.60 *) Non-profit Shareholders whose shares have not corporations 2.0% been transferred to the book-entry secu- *) Board proposal to the AGM Households 9.2%

rities system are also entitled to attend Source: OMX and Bloomberg the AGM, provided they were registered According to the proposal, only in Sampo’s share register before 12 Sep- shareholders who are registered in the tember, 1997.In this case, the shareholder shareholder register kept by Finnish must present at the AGM a share certifi- Central Securities Depository Ltd on the Monthly share turnover, trading volume, cate or other proof that ownership of the record date for dividend payment, million, 2001–2005 shares has not been transferred to a book- 10 April, 2006, are entitled to dividends. entry account. The proposed dividend payment date is 125 To be entitled to participate in the 19 April, 2006. 100 AGM, shareholders and nominee-regis- Shareholders who have not trans- 75 tered shareholders must register by 4 p.m. ferred their share certificates to the book- on 31 March, 2006 at Sampo Share Issues. entry securities system by the dividend 50

record date will be paid their dividends 25 Dividends and distribution policy after the shares have been transferred to 0 The Board of Sampo plc adopted a new the book-entry system. 01 02 03 04 05 distribution policy on 3 November 2004, Financial information in 2006 Source: OMX and Bloomberg according to which the company’s objective is to distribute 50 per cent of its net The official financial statements for profit to shareholders through share buy- 2005 can be inspected in full at Sampo backs and/or dividends. Legal Affairs, Unioninkatu 22, Helsinki, Monthly share price performance The Board proposes that a dividend Finland. 2001–2005, euro of EUR 0.60 per share be distributed to The Annual Report is published on 16 564,700,515 shares, corresponding to total Sampo’s Internet pages at the address

dividends of EUR 338.8 million. This fig- www.sampo.com/annualreport Printed 12 ure includes 382,200 shares subscribed for Annual Reports can be ordered at the with options during the year and whose above Internet address, by mail from 8 subscriptions were approved by the Board Sampo Communications, P.O.Box 1026, on 20 January, 2006. The Board of Direc- FI-00075 SAMPO, FINLAND or by 4 tors will propose to the Annual General calling +358 010 516 0042. 0 Meeting that authorisation to repurchase 01 02 03 04 05 Sampo will publish three Interim Reports in Sampo shares be granted. 2006, on 11 May, 10 August and 9 November. Source: OMX and Bloomberg The Interim Reports are published on the Internet at http://www.sampo.com/interim- reports.

Press and stock exchange releases, the monthly updated list of shareholders and other investor information published by Sampo is available on the Internet at www.sampo.com.

24 Sampo Group | Sampo Group Review 2005 Shareholders at 31 December, 2005

% of share % of A and B shares Number of shares capital votes

Finnish State 79,280,080 13.88 13.76 Varma Mutual Pension Insurance Company 60,438,785 10.58 10.49 Björn Wahlroos 11,739,890 2.05 2.04 Stora-Enso Oyj 8,746,620 1.53 1.52 Sampo plc 7,000,000 1.23 1.22 Kaleva Mutual Insurance Company *) 6,993,855 1.22 2.05 Ilmarinen Mutual Pension Insurance Company 6,120,255 1.07 1.06 The State Pension Fund 3,900,000 0.68 0.68 OP-Delta Fund 3,820,300 0.67 0.66 Mutual Insurance Company Pension-Fennia 2,915,800 0.51 0.51 The Local Government Pension Institution 2,389,446 0.42 0.41 Wärtsilä Corporation 1,901,000 0.33 0.33 Neste Oil Pension Fund 1,748,940 0.31 0.30 OMX Helsinki 25 Exchange Traded Fund 1,425,248 0.25 0.25 Etera Mutual Pension Insurance Company 1,407,350 0.25 0.24 Sampo Finnish Equity Fund 1,355,375 0.24 0.24 Odin Norden 1,068,900 0.19 0.19 The Finnish National Fund for Research and Development, Sitra 998,000 0.17 0.17 Nordea Life Assurance Finland Ltd 909,600 0.16 0.16 Alfred Berg Finland Fund 873,170 0.15 0.15 In the nominee register, total 276,549,664 48.41 48.00 Others, total 89,736,037 15.71 15.58 Total 571,318,315 100.00 100.00

*) 5,793,855 A shares and 1,200,000 B shares

Shareholders by number of shares owned at 31 December, 2005

Number of shares Shareholders Book-entry securities Votes A and B shares Number % Number % Number %

1 – 100 13,218 22.97 882,614 0.15 882,614 0.15 101 – 500 27,040 46.99 7,315,658 1.28 7,315,658 1.27 501 – 1,000 8,189 14.23 6,538,679 1.14 6,538,679 1.14 1,001 – 5,000 7,375 12.82 16,061,461 2.81 16,061,461 2.79 5,001 – 10,000 905 1.57 6,588,812 1.15 6,588,812 1.14 10,001 – 50,000 623 1.08 12,431,992 2.18 12,431,992 2.16 50,001 – 100,000 77 0.13 5,631,188 0.99 5,631,188 0.98 100,001 – 500,000 81 0.14 17,680,415 3.10 17,680,415 3.07 500,001 – 39 0.07 490,315,536 85.82 495,115,536 85.94 Total 57,547 100.00 563,446,355 98.62 568,246,355 98.63 On waiting list, total 0 0.00 0 0.00 On joint account 7,871,960 1.38 7,871,960 1.37 Total shares issued 571,318,315 100.00 576,118,315 100.00

Sampo Group | Sampo Group Review 2005 25 Sampo will publish three Interim Reports in 2006 : Bellcrest-Translations Ltd, Tmi Tina Tina Tmi Ltd, Bellcrest-Translations : | Translation | Sampo plc, registered domicile Helsinki, business ID 0142213-3 ID business Helsinki, domicile registered plc, Sampo | | Tapani Kyrki (cover and case, Sampo Group Review), Olli Pulkkanen (cover, Banking and and Banking (cover, Pulkkanen Olli Review), Group Sampo case, and (cover Kyrki Tapani : : : Libris, Helsinki 2006 Helsinki Libris, : : Horst Neumann and Petri Artturi Asikainen Asikainen Artturi Petri and Neumann Horst : | Printing | | Photographs | | Photographers | : Miltton Oy Oy Miltton : Concept, graphic design and layout and design graphic Concept, Sandberg Olof Språkkonsult, Uddevalla Pettersson-Mäki, Insurance) P&C If (cover, Ervasti Maria Savings), Long-term Board of Directors’ Report and Financial Statements 2005

Contents

2 Sampo plc – Board of Directors’ Report 2005

16 IFRS Financial Statements 16 Consolidated Income Statement 17 Consolidated Balance Sheet 18 Statement of Changes in Equity 19 Cash Flow Statement 22 Notes to the Financial Statements 22 Summary of Significant Accounting Policies 32 Risk Management 50 Segment Information 55 Other Notes

121 Parent Company Financial Statements 134 Auditor’s Report 136 Contact Information Saampo Group

Sampo is a financial services group comprising

Sampo Group’s core businesses are banking, long-term savings and property and casualty insurance.

P&C insurance

RoE 24.1% Banking and investment services Combined ratio 90.5%

Group profit before taxes Sampo Group staff per country, per cent Lithuania 4% EURm Latvia 1% 1,200 Others 1% 1,000 Estonia 8% 800 Denmark 3% 600 Norway 15% Finland 52% 400 200

0 Sweden 16% Banking Life If P&C Other Sampo and Insurance Insurance Group Investment Services Contents

2 Sampo plc – Board of Directors' Report 2005 2 Changes in Group Structure 3 Administration 4 Changes in Share Capital 5 Staff 5 Ratings 5 Group Solvency 5 Risk Management 6 Banking and Investment Services 7 P&C Insurance 7 Life Insurance 8 Other 8 Outlook for 2006 9 Board’s Dividend Proposal 10 Key Figures 13 Calculation of Key Figures

121 parent Company Financial Statements 121 Income Statement 122 Balance Sheet 124 Notes to the Financial Statements

134 auditor's Report

136 contact Information

Sampo Group I Board of Directors’ Report and Financial Statements Sampo plc – Board of Directors’ Report 2005

Sampo Group’s business areas are banking cial and share price performance. Pay- In April 2005, Sampo Life Insurance and investment services, P&C insurance ments under the schemes cover the finan- Company Ltd was granted permission to and life insurance. The Group reports cial years 2005 – 2008. At 31 December pursue life insurance business in Sweden. according to this segmentation, and the 2005 the total provision for management The new company, If Livförsäkring AB, operations of the holding company, Sam- incentive schemes, including social secu- is fully owned by Sampo Life. The new po plc, are reported together with the IT rity costs, was EUR 38.1 million and the company writes mainly term life insur- services provider Primasoft in the Other impact on the year 2005 result was EUR ance. Sampo Life also gained permission segment. Sampo plc owns 100 per cent 22 million. to expand its operations to Norway and of its main subsidiaries Sampo Bank plc, The Group’s equity on 31 Decem- has established a branch office there in If P&C Insurance Holding Ltd (publ.) ber was EUR 4,348 million (3,465). order to offer policies under the OTP and Sampo Life Insurance Company Equity was strengthened by the profit for pension scheme. Ltd., which in turn own other operating the period, the increase in the fair value Arvo Asset Management Ltd, estab- companies. reserve and new capital through sub- lished in May 2005 by Sampo plc, com- Sampo Bank operates in Finland and scriptions with option rights. Equity was menced operations on 21 September has subsidiaries in all three Baltic coun- reduced by the dividends paid in April, 2005. The new asset management compa- tries. It provides, in addition to traditional the repurchase of Sampo A shares in June ny focuses on value stocks. Sampo initially banking services, long-term savings prod- – July and exchange rate effects. As of 1 owns 62 per cent and will in the future ucts and investment services. If P&C January 2005 Sampo Group’s capital ade- own at least 51 per cent of the company, Insurance is a pan-Nordic entity and has quacy has been measured by the Finnish with the remainder being held by the around 20 per cent of the Nordic P&C rules on conglomerate capital adequacy management. The new company enhances insurance market. If is also the market based on the European Union’s Directive Sampo’s strategy in long-term savings. leader in Estonia and has subsidiaries in 2002/87/EU. At the end of December In June 2005, Sampo plc signed a all Baltic countries. Sampo Life focuses 2005 Sampo Group’s own funds exceeded binding agreement to sell its subsidiaries on unit-linked and regular premium poli- the minimum solvency requirements by in Poland – the Sampo PTE S.A. pension cies and is the market leader in corporate EUR 2,123.6 million and the solvency company and the Sampo T.U. Zycie S.A. life insurance in Finland. It also has fast- ratio was 196.1 per cent (170.6). life insurance company – to Nordea Life growing life insurance operations in Esto- Sampo Group’s balance sheet total Holding A/S. The transaction was closed nia, Latvia and Lithuania. grew by 13 per cent to EUR 42,985 mil- in December 2005 when the necessary Sampo Group succeeded well in 2005. lion. Asset growth was fastest in loans to official permits were obtained. The opera- The profitability of the Group was very customers in the banking and investment tions were considered non-core and the good with an RoE of 28.4 per cent (25.6). services segment, which grew by EUR transaction released capital for growth in The Bank increased its housing loan mar- 3,094 million to EUR 18,483 million and focus areas. The consideration was EUR ket share in Finland from 14.3 per cent to in investment assets of the insurance seg- 95 million, of which Sampo recognises a 15.5 per cent in 2005. Sampo Life’s mar- ments, which grew from EUR 13,903 sales gain of EUR 24 million in the bank- ket share in Finnish life insurance grew to million to EUR 15,332 million. In addi- ing and investment services segment. 19.5 per cent (17.6), although its position tion, unit-linked investments increased to Sampo wrote down most of the compa- in the unit-linked business weakened. Pre- EUR 1,262 million (882). On the liability nies’ goodwill in 2002. liminary information would suggest that side of the balance sheet, debt securities The Baltic P&C insurance companies changes in P&C insurance market shares in issue increased by EUR 1,836 million AS If Eesti Kindlustus, AAS If Latvia and were small. to EUR 8,461 million. Sampo Housing UAB If Draudimas (Lithuania) owned by Sampo Group’s profit before taxes Loan Bank’s covered bond issue of Sep- If P&C Insurance Company Ltd (Fin- in 2005 amounted to EUR 1,295 mil- tember 2005 represents EUR 1 billion of land) were transferred to the ownership lion (948). Earnings per share rose to the growth. of If P&C Insurance Holding Ltd in EUR 1.68 (1.46). Taking into account the November 2005. The transaction stream- Changes in Group structure change in the fair value reserve, earnings lines the corporate structure of If and has per share were EUR 1.97 (1.58). Sampo Sampo Group streamlined its legal struc- no effect on the results. Group’s RoE target of 19 per cent was ture to better correspond to the reporting Sampo Life Insurance Company Ltd surpassed as the RoE climbed to 28.4 structure in 2005. These reorganisations decided in December 2005 to combine its per cent (26.5). Net asset value per share improve governance and operational subsidiaries operating in Estonia, Latvia increased to EUR 7.67 (6.16). efficiency. In addition, Sampo Group and Lithuania into one legal company In December the first payout from established new companies to support operating in all Baltic countries. The rear- the management’s long-term incentive core businesses and disposed of non-core rangement will simplify and strengthen schemes was made. The payout of the operations. the structure of the Baltic life insurance schemes is dependent on Sampo’s finan- operations and will improve efficiency.

Sampo Group I Board of Directors’ Report and Financial Statements Group quarterly income statement 1 0–12/ 7–9/ 4–6/ –3/ 0–12/ EURm 2005 2005 2005 2005 2004

Net interest income 85 75 77 73 74 Net income from financial transactions 17 25 12 21 11 Net fee and commission income 50 57 51 45 44 Impairment losses on loans and receivables –4 –1 3 4 –3 Insurance premiums 1,161 1,058 1,104 1,035 1,073 Net income from investments 203 319 351 207 181 Other operating income 40 11 10 11 24 Total operating income 1,551 1,545 1,608 1,396 1,404

Claims incurred –710 –765 –736 –803 –635 Change in liabilities for insurance and investment contracts –186 –70 –125 –9 –135 Staff costs –201 –161 –171 –172 –169 Other operating expenses –166 –175 –173 –182 –185 Total operating expenses –1,263 –1,171 –1,204 –1,166 –1,123

Profit before taxes from continuing operations 287 374 403 230 282

Profit before taxes from discontinued operations 1 0 –1 –1 –2

Profit before taxes 288 374 403 230 280

Taxes –63 –102 –110 –58 –42 Profit for the financial year 225 273 293 172 239

Attributable to Equity holders of parent company 222 270 288 169 237 Minority interest 3 3 5 3 1

AAS Sampo Dziviba, operating in Latvia, The investment services companies The Annual General Meeting and AB Sampo gyvybes draudimas, oper- owned by Sampo plc were transferred to approved the financial accounts for 2004 ating in Lithuania, will be merged into the ownership of Sampo Bank plc on 30 and discharged the Board of Directors and the Estonian company, AS Sampo Elu- December 2005. The transferred compa- the Chief Executive Officer from liability. kindlustus, which at the same time will be nies were Mandatum & Co Ltd, Sampo The Annual General Meeting also decid- converted into a European company to be Fund Management Ltd, 3C Asset Man- ed, in accordance with the proposal of the named SE Sampo Life Baltic and domi- agement Ltd, Mandatum Asset Manage- Board of Directors, to pay a dividend of ciled in Tallinn. The transactions are con- ment Ltd, Mandatum Stockbrokers Ltd EUR 0.20 per share for 2004. The divi- ditional on the receipt of necessary official and Arvo Asset Management Ltd. dend was paid on 21 April 2005. permits by the authorities of the respective In addition, the Annual General Administration Baltic countries. Meeting approved the following amend- Sampo plc decided in November 2005 The Annual General Meeting held on ments, as proposed by the Board, to the to sell its fully-owned subsidiary Manda- 11 April 2005 re-elected the earlier 8 Articles of Association: tum Private Equity Funds Ltd to Amanda members – Tom Berglund, Anne Bru- - In accordance with Article 2 of the Capital Plc. The transaction was complet- nila, Georg Ehrnrooth, Jyrki Juusela, Articles of Association, Sampo plc’s domi- ed on 9 December 2005 after the approval Olli-Pekka Kallasvuo, Christoffer Taxell, cile was changed from Turku to Helsinki, of Amanda Capital’s Extraordinary Gen- Matti Vuoria and Björn Wahlroos – to the where Sampo plc’s head office and admin- eral Meeting. The consideration was EUR Board. At its inaugural meeting the Board istrative domicile are already located. 4 million. re-elected Olli-Pekka Kallasvuo as Chair- - Paragraph 3 of Article 8 of the man and Jyrki Juusela as Vice Chairman. Articles of Association and the reference

Sampo Group I Board of Directors’ Report and Financial Statements Sampo PLC – Board of Directors’ Report 2005

contained therein to the age of Board Björn Wahlroos, Group CEO and Presi- tioned authorisation, to repurchase a members at the beginning of their term of dent, became Chairman of the Board maximum of 7 million Sampo A shares office was deleted. of Sampo Bank, while the other Board through public trading on the Helsinki - The reference in Paragraph 2 of members are Patrick Lapveteläinen, Ilkka Stock Exchange. Repurchases started Article 17 of the Articles of Association Hallavo, Mika Ihamuotila and Maarit on 29 June 2005 and continued until the to the publication of a Notice of General Näkyvä. At the same time, Mika Iha- maximum amount was achieved on 13 Meeting in a newspaper published in muotila was appointed as President of July 2005. EUR 87.7 million was used to Turku was deleted due to the above-men- Sampo Bank. He already had the overall acquire the shares. At 31 December 2005 tioned amendment to Article 2 of the responsibility for all of Sampo’s banking Sampo plc held 7 million of its own A Articles of Association. and investment services operations. Ilkka shares, corresponding to 1.2 per cent of The firm of authorised public Hallavo and Maarit Näkyvä were appoint- the total amount of shares and votes. The accountants, Ernst & Young Oy, was re- ed as Executive Vice Presidents of Sampo repurchased shares corresponded to EUR elected Auditor. Bank, with Hallavo being deputy to Iha- 1.2 million in share capital. The Annual General Meeting of muotila. These appointments were linked A total of 5,755,650 subscriptions of Sampo Life Insurance Company Ltd held to the streamlining of the legal structure shares with the warrants of Sampo plc’s on 17 March 2005 decided to simplify the of Sampo’s banking and investment serv- 1998 option programme and 1,800,250 company’s administrative structure and ices segment. subscriptions with the warrants of 2000 to terminate the company’s Supervisory Hannu Kokkonen, Managing Direc- option programme were submitted to Board. The Articles of Association were tor of If P&C Insurance Ltd (Sweden) the Board and approved in 2005. The amended accordingly. and of If P&C Insurance Company Ltd subscriptions increased the share capital On 25 January 2005 Sampo plc’s (Finland) will retire in the first half of by EUR 1,270,811.18. The subscription Board of Directors nominated three 2006. Ricard Wennerklint was appointed period for the 1998 option programme new members to the Group’s Executive to succeed him as Managing Director of ended on 31 May 2005 and trading in Committee. They were Gunnar Rogstad, If P&C Insurance Ltd (Sweden) as of 1 these warrants on the Helsinki Stock responsible for the If Private business January 2006. Petri Ekman was appointed Exchange was terminated on 24 May area, Ivar Martinsen, responsible for the Deputy Managing Director of If P&C 2005. The subscription period for the If Commercial business area and Ricard Insurance Company Ltd (Finland) in 2000 option programme ends at 31 Wennerklint, CFO of If. At the same time November 2005. Kokkonen will continue January 2007 and at the end of the year the Board also appointed a Group MD to act as Managing Director of If P&C 4,838,950 warrants were outstanding, of Committee, consisting of Björn Wahlroos, Insurance Company Ltd (Finland) until which Satura, a fully-owned subsidiary of Group CEO and President (Chairman), his retirement. Sampo plc, held 1,030,250 warrants. At For a comprehensive review of Sampo Kari Stadigh, Group Deputy CEO, Tor- maximum, if all subscription rights were Group’s administration and governance sys- björn Magnusson, President of If, Mika to be exercised, Sampo plc’s share capital tem, see Annual Report, section Corporate Ihamuotila, President of Banking and Governance. would increase by EUR 4,069,264.92, Patrick Lapveteläinen, CIO. Ilona Ervas- corresponding to 4.2 per cent of share ti-Vaintola, Chief Counsel, was chosen as Changes in share capital capital at the end of 2005. Secretary. Furthermore, subscriptions with the On 5 April 2005, Sampo plc’s Board The Annual General Meeting of 11 April warrants of the 2000 option programme of Directors appointed Morten Thorsrud 2005 authorised the Board of Directors for 382,200 A shares were approved by the as Head of If Industrial business area. to repurchase Sampo’s own shares. The Board at 20 January 2006. As the sub- On 22 June 2005 the Board nomi- authorisation is valid until 11 April 2006. scriptions were already submitted in 2005, nated Line Hestvik as Head of If Private The maximum amount of A shares that the new shares are entitled to dividends business area and member of Sampo can be repurchased is 5 per cent of the for the year 2005. Group’s Executive Committee. Line company’s share capital or of the number At 31 December 2005 Sampo Hestvik replaced Gunnar Rogstad as a of votes attached to all shares. Shares can plc’s share capital amounted to EUR member of the Board of If P&C Insur- be bought back either through an offer 96,088,842.74, and the number of A ance Ltd in Sweden and If P&C Insur- made to all holders of A shares in propor- shares totalled 570,118,315. The total ance Company Ltd in Finland and also as tion to their holdings and on equal terms number of shares of the company, includ- a member of Sampo Group’s Executive determined by the Board, or through ing 1,200,000 B shares, was 571,318,315. Committee. public trading on the Helsinki Stock To facilitate the payment of year Changes were made to Sampo Bank’s Exchange. Shares can only be repurchased 2004 dividends, a new share category Board of Directors at 15 October 2005. to be cancelled. called Sampo Uudet (Sampo New) was On 22 June 2005, the Board of Direc- taken on the main list of the Helsinki tors decided, pursuant to the above-men- Stock Exchange as of 1 January 2005.

Sampo Group I Board of Directors’ Report and Financial Statements Ratings at 31 December 2005 13 per cent in the Baltic countries, 4 per S standard Rated company Moody's and Poor's cent in Denmark and 1 per cent in other Sampo plc Baa1 Not rated countries. The staff decreased in P&C Sampo Bank plc A1/P–1 A/A–1 insurance and Primasoft, but increased in AS Sampo Pank (Estonia) A2*)/P1 Not rated banking due to growth in the Baltic sub- If P&C Insurance Company Ltd (Finland) A2 A sidiaries. The average number of employ- If P&C Insurance Ltd (Sweden) A2 A ees during 2005 was 11,730, compared *) Long-term bank deposit rating with 11,898 during 2004. Ratings Sampo Group solvency 31 Dec. 31 Dec. Standard & Poor’s Ratings Services raised EURm 2005 2004 its long-term counterparty credit and Group capital 4,348.1 3,439.8 insurer financial strength ratings on Swe- Sectoral items 2,733.1 1,987.8 den-based If P&C Insurance Ltd (publ) Intangibles and sectoral deductibles –2,254.5 –1,291.0 and Finland-based If P&C Insurance Other sectoral non-transferable items –493.8 –500.0 Company Ltd to ‘A’ from ‘A-’ on 11 Octo- Group’s own funds, total 4,332.9 3,636.6 ber 2005. At the same time, Standard & Poor’s raised its counterparty credit rat- Minimum requirements for own funds, total 2,209.3 2,132.2 ings on Sampo Bank plc to ‘A/A-1’ from ‘A-/A-2’. The outlook is stable in both Group solvency 2,123.6 1,504.4 cases. According to Standard & Poor’s, the upgrades reflect continued outperform- Group solvency ratio ance of earnings expectations and the (Own funds % of minimum requirements) 196.1% 170.6% Group’s significantly reduced financial leverage. Group solvency New rules on calculating solvency for financial conglomerates entered into force The Sampo A shares subscribed for with by Barclays plc and the funds managed at 1 January 2005. Group solvency con- warrants from the 1998 or 2000 option by it had risen above 5 per cent of Sampo sists of the difference between the group’s programmes after 31 December 2004 plc’s entire stock. Two weeks later, at 16 own funds and the minimum requirement were entitled to dividends only after the November, a new notification was received set for them. The rules determine the own dividend for 2004 had been paid. The from Barclays plc stating that the total funds and minimum own funds require- new category was merged with Sampo A number of Sampo A shares owned by ments for subsidiaries and associated shares in April 2005. Barclays plc and the funds managed by it companies operating in the banking or At 18 February 2005 Sampo received had decreased below 5 per cent. insurance sector to be calculated accord- a disclosure under chapter 2, section 9 of For a comprehensive review of Sampo ing to sectoral rules. In the group solvency Group’s share capital and shareholder deve- the Securities Markets Act, according to calculation, funds that cannot be used to lopment, see Annual Report, section Shares which the Finnish government’s holding and shareholders. cover losses in other group companies in Sampo A shares and voting rights had are not taken into consideration. Sampo decreased below 15 per cent. The Finnish Staff Group applies the consolidation method government also informed Sampo that it to calculate its solvency position. The had agreed to a lock-up of its remaining The number of full-time equivalent staff Group’s solvency ratio (own funds in rela- Sampo shares for 90 days. decreased in 2005 by 173 employees to tion to minimum requirements for own At 5 July 2005 Varma Mutual Pen- 11,627 employees at 31 December. Of the funds) at 31 December 2005 was 196.1 sion Insurance Company notified Sampo staff, 37 per cent worked in banking and per cent (170.6). that its holding of Sampo A shares and investment services, 56 per cent in P&C Risk management voting rights had decreased below 15 insurance, 3 per cent in life insurance, 1 per cent. At 1 November 2005, Sampo per cent in the holding company and 4 The main objective of risk management is received a disclosure according to which per cent in Primasoft. Geographically, to ensure that the capital base is adequate the total number of Sampo A shares held 52 per cent worked in Finland, 16 per in relation to the risks arising from busi- cent in Sweden, 14 per cent in Norway,

Sampo Group I Board of Directors’ Report and Financial Statements Sampo PLC – Board of Directors’ Report 2005

ness activities. The risks in Sampo Group with more than half of the growth being extremely strongly by 31 per cent in total are described and aggregated internally derived from the Baltic operations. In and 26 per cent in Finland, exceeding the through economic capital, which describes Finland, strong growth in lending volumes market growth of 17 per cent. Sampo the amount of capital needed to bear dif- more than compensated for tightening of Bank’s market share of Finnish housing ferent kinds of risks. The economic capi- spreads. Operating expenses rose mainly loans rose to 15.5 per cent (14.3). Growth tal tied up in the Group’s operations was because of growth in the Baltic operations in housing loan market share also wid- EUR 3,148 million (2,992). The require- and modest wage inflation in Finland. The ens the possibilities to offer other Sampo ment is well covered by equity and capital cost to income ratio improved to 57.3 per Group’s financial services. Consumer securities. The major risks associated with cent (60.0). RoE was 23.1 per cent (13.7). credit rose by 18 per cent and especially Sampo Group’s activities are credit risk Core operational performance showed credit card loans grew significantly. arising from banking and investments, a clear improvement because net interest The Baltic operations continued high the market risks of investment portfolios, income and fee income rose, while expens- volume growth and the lending volume the interest rate and liquidity risks of the es increased to a lesser extent. The profit exceeded EUR 1.4 billion (0.8). The banking book and insurance risks. Opera- before taxes includes similar-size major distribution network was expanded by tional risks and various business risks such one-off items both in 2005 and 2004. In increasing the number of branches to 16 as changes in competition or customer 2005 the profit before taxes includes sales in Estonia, to 12 in Lithuania and to 2 behaviour are inherent in all business gains from private equity worth EUR 32 in Latvia. The Estonian and Lithuanian areas. The perceived risks in the busi- million, a EUR 24 million gain from dis- operations grew substantially in 2005 nesses and operating environment did not posal of the Polish operation and a EUR 2 with the number of customers reaching change significantly during 2005. million sales gain from Mandatum Private 129,900 in Estonia and 46,900 in Lithua- For a comprehensive review of Sampo Equity Fund Ltd. The comparison period nia. Most of the increase came from new Group’s main risks and risk management includes one-off income of EUR 25 mil- retail customers, who are the main focus activities, see Financial Statements 2005, section Risk Management. lion in private equity gains and EUR 23 in the Baltic countries. Housing loans, in million from a VAT refund. In addition, particular, grew rapidly all year. The profit Banking and investment services the comparison figure contains Sampo before tax of the Baltic banks was EUR 14 Credit plc which was merged into Sam- million (8). Sampo Group’s main banking and invest- po plc in September 2004. The merger Corporate lending grew by 14 per cent ment service companies are organised reduced net interest income and its year- and off-balance sheet commitments by under Sampo Bank plc and its subsidiar- on-year impact was EUR 9 million. 15 per cent to EUR 6.9 billion. Spreads ies. Sampo Bank plc operates mainly in Net fee and commission income grew in corporate lending remained fairly Finland and through subsidiaries in all to EUR 221 million (197) mainly because flat. Credit quality remained good. Net Baltic countries. The investment services the growth in mutual funds and asset impairment on loans and receivables was companies are Sampo Fund Management management continued. Lending and positive and added EUR 3 million (11) to Ltd, Mandatum Asset Management Ltd, investment banking fees also grew strong- the profit. Mandatum Securities Ltd (former Man- ly, partly because of strong activity in the Deposits rose to EUR 11,442 million datum Stockbrokers Ltd), Mandatum & M&A and equity market. Mutual fund (10,410) at the end of the year. Sampo Co Ltd, 3C Asset Management Ltd and assets grew by 31 per cent to EUR 8,885 Bank’s market share of domestic deposits Arvo Asset Management Ltd. Sampo million (6,783), with the biggest increases by the public at the end of the year was Bank’s branch network also operates as a in balanced and bond funds. New equity 12.8 per cent (12.7). Faster growth in distribution channel for other products funds investing in emerging markets were lending has created a need for additional like life insurance and offers financial launched successfully. Assets include EUR funding, which was mainly achieved by advisory services. Sampo Bank opened 1.2 billion (1.3) in intra-Group invest- issuing senior bonds. Sampo Bank Group a new branch office for corporate clients ments. Sampo’s market share of the assets also diversified its funding by activating in Stockholm in September. Sampo also of mutual funds registered in Finland was Sampo Housing Loan Bank plc, which announced a plan to launch banking oper- 19.9 per cent (22.0) at 31 December 2005. issued the first Nordic benchmark-size ations in Russia. The growth of loans and advances EUR 1 billion covered bond in September The year 2005 was characterised by was fast throughout the period and the 2005. The issue is covered by EUR 1.1 strong growth in retail lending and mutual total of EUR 18,483 million was 20 per billion in housing loans transferred from funds. Total operating income in bank- cent higher than one year earlier. Sampo Sampo Bank to the Sampo Housing Loan ing and investment services was EUR 736 Bank’s market share of all loans granted Bank. million (682) and expenses were EUR by Finnish financial institutions was about Sampo Bank Group’s capital adequacy 420 million (403). Profit before taxes rose 14.3 per cent (13.8) and its market share was 10.6 per cent (10.7). The tier 1 ratio to EUR 316 million (274). Net interest of lending to households in Finland was was 7.6 per cent (7.3) and tier 1 capital income rose to EUR 341 million (322), 14.1 per cent (12.9). Housing loans grew rose to EUR 1,255 million (1,000) due

Sampo Group I Board of Directors’ Report and Financial Statements to retained profits and an issue of a EUR Large claims development in the Com- (approx. EUR 430 million) is planned for 125 million capital loan. Risk-weighted mercial business area was EUR 30 million distribution to the parent company, Sam- assets grew 20 per cent to EUR 16,466 better than normal, but in the Industrial po plc, in early 2006. The average duration million because of the strong growth in business area large claims increased from of liabilities was 4.7 years at 31 Decem- lending. A dividend of EUR 72 million, of 2004 and were at a normal level in 2005. ber 2005. Technical reserves at the end of which EUR 50 million came from Sampo The Gudrun storm in January 2005 led to 2005 were EUR 7,885 million (7,302) and Bank plc, is planned for distribution to claims payments of EUR 22 million after were 156.6 per cent (144.0) of premiums the parent company, Sampo plc, in early reinsurers’ share and a reinstatement fee of written. 2006. Because of its good capital position, EUR 11 million. The risk ratio decreased If and Ford Credit Europe FCE Bank Sampo Bank is well-placed to continue its by 0.8 percentage points to 66.2 per cent. plc signed a frame agreement on car- healthy growth. Claims inflation continued to be very low. branded insurance for Ford, Jaguar, Land EUR 39 million was released from tech- Rover, Mazda and Volvo in December P&C insurance nical reserves relating to prior year claims. 2005. Car owners will be offered a spe- If is the leading property and casualty The cost ratio improved by 1.3 per- cially designed insurance for their own car insurance company in the Nordic region, centage points to 24.3 per cent. Total costs brand. The insurance will be marketed by with insurance operations that also decreased to EUR 931 million mainly franchised car dealers and by If. encompass the Baltic countries. If P&C driven by staff reductions, IT savings The five-year frame agreement Insurance Holding Ltd, headquartered and lower commission costs. The cost covers Denmark, Finland (excl. Land in Sweden, is the parent company for ratios improved for the whole operation Rover), Norway and Sweden. The new property and casualty insurance within and in each and every business area. The car -branded insurance policies will be the Sampo Group. Business operations improvement was particularly positive in launched gradually during 2006. Alto- are conducted via subsidiaries and branch the Finnish operation, which was sub- gether, the five Ford car brands have an offices in the Nordic and Baltic countries. ject to a comprehensive cost reduction average Nordic market share of about 20 In the first quarter of 2004 Sampo programme. percent of new car sales. plc’s holding in If P&C was 38.05 per Premiums grew by 2 per cent to EUR If launched several new personal and cent and the company was treated as an 3,709 million. Premiums grew by 3 per employee benefit insurance products dur- associated company. As of 1 April 2004 cent in the Private business area and by 16 ing 2005. These products reached a good the company has been fully consolidated per cent in the Baltics. In the Commercial sales volume already in the first year as in Sampo Group’s accounts. Accordingly, business area, premium income was flat 65,000 contracts were signed. Private cli- the comparison figures only reflect the last and in Industrial premiums decreased by ents who concentrate their insurance poli- three quarters of 2004. 3 per cent. cies with If are rewarded by lower deducti- In If ’s six year-long history, 2005 At 31 December 2005, If ’s total bles and premium rebates. This project, was the most profitable year so far. Profit investment assets amounted to EUR 10.0 called If Plus, was launched in Sweden before taxes for the P&C insurance opera- billion (8.9). Of all investment assets, 88 and Norway and it extends to other serv- tions rose to EUR 800 million (427). The per cent was invested in fixed income ices, such as free change of winter tires, for strong result was accomplished by a sound instruments (84), 10 per cent in equity loyal customers. insurance result and a good investment (12) and 2 per cent in other assets (4). Life insurance yield. The RoE target of 17.5 per cent Investment income rose to EUR 460 was clearly exceeded with an RoE of 24.1 million (160), largely because of the good Sampo Life Group consists of Sampo per cent. The technical result was EUR performance of equity investments. The Life, a wholly-owned subsidiary of Sampo 516 million (490), of which the Private return on investment was 5.8 percent plc, operating in Finland and of its sub- business area accounted for 58 per cent, (4.3). At 31 December 2005 the duration sidiaries in all the Baltic countries. The Commercial for 30 per cent, Industrial for for interest-bearing assets was 2.4 years. company also has a subsidiary in Sweden 10 per cent and the Baltics for 2 per cent. The solvency ratio – i.e. solvency to complement the product offering of If The insurance margin – technical result in capital in relation to net premiums written P&C. relation to net premiums earned – rose to – rose to 87.5 per cent (69.8) and solvency Profit before taxes for Sampo Group’s 13.9 per cent (12.9). capital increased to EUR 3,216 million life insurance operations was EUR 234 The combined ratio improved by 2.1 (2,499). Shareholders’ equity rose to EUR million (142). The result was supported percentage points to 90.5 per cent (92.6). 2,595 million (2,218). If issued non- by net investment income, which rose to Efforts both to exploit the economies cumulative capital contribution securities EUR 423 million (285), excluding the of scale in If ’s Nordic concept and to of EUR 150 million in June 2005 increas- return on investments in unit-linked con- improve the quality of risks in If ’s port- ing the solvency ratio by 4 percentage folio have been pursued determinedly. points. A dividend of SEK 4,000 million

Sampo Group I Board of Directors’ Report and Financial Statements Sampo PLC – Board of Directors’ Report 2005

tracts of EUR 163 million (53). The fair end. The interest rate used for discount- Other value reserve grew by EUR 170 million in ing technical reserves relating to endow- The operations of Sampo plc (the hold- 2005. The yield on investments at market ment and capital redemption policies was ing company) and Primasoft are reported values was up to 11.5 per cent (8.5) largely decreased to 2.5 per cent from 3.5 per in this segment. Sampo plc’s main func- because of favourable equity market devel- cent. The measure increased technical tion is to own and control the subsidiaries opment. The RoE target of 17.5 per cent reserves by EUR 25.5 million. In addi- engaged in insurance, banking and invest- was surpassed by a wide margin, as the tion the guaranteed rate for individual and ment services. Primasoft provides IT RoE of life insurance operations amount- group pension reserves carrying a guaran- services for various companies in Sampo ed to 39.0 per cent. teed rate of 3.5 or 4.5 per cent was low- Group. At 31 December 2005 the investment ered to 3 per cent for the year 2006, which The segment’s loss before taxes assets of life operations, excluding the increased technical reserves by EUR 19 amounted to EUR 49 million (106). The assets of EUR 1.3 billion (0.9) covering million. comparison figure contains EUR 95 mil- unit-linked contracts, amounted to EUR The total gross premium income of lion in sales gains from the sale of Skan- 5.9 billion (5.3) at market values. Of these Sampo Group’s life insurance companies dia shares held by Sampo plc and Sampo assets, fixed income covered 64 per cent grew by 27 per cent to EUR 668 million plc’s share of If ’s profits (EUR 40 million) (57), equity 33 per cent (38) and real estate (526). Direct premiums on own account in the first quarter of 2004, when If was 3 per cent (5). Equity investments include grew by 30 per cent to EUR 649 million treated as an associated company. direct equity holdings, equity funds and (500). Single premium contracts trans- Sampo plc’s balance sheet total was private equity. ferring pension fund liabilities to Sampo EUR 3.6 billion. Of this amount, hold- At the end of the financial year Finn- Life accounted for EUR 101 million of ings in banking and investment services ish investments accounted for 40 per cent the premium growth. Premiums received companies accounted for EUR 0.8 billion (35) of all investments, the rest of the from reinsurance were EUR 13 million and holdings in insurance companies for euro zone for 29 per cent (29) and other negative, due to the sale of part of the EUR 2.4 billion. Investments in real estate foreign investments for 31 per cent (36). reinsurance portfolio. Premiums from the decreased from EUR 105 million to EUR Finland’s share of equity investments was Baltic companies grew by 75 per cent to 31 million, because of disposals. In addi- 57 per cent (56). EUR 21 million (12). The Swedish sub- tion to short-term operational financing, Particular attention was given to cost sidiary, If Livförsäkring AB, was launched liabilities include two debt instruments control in 2005. As a result the expense in May 2005 and received EUR 0.8 mil- – a subordinated note and a senior note ratio decreased to 93.4 per cent (100.6). lion in premiums. Regular premiums grew with face values of EUR 600 million and If all fees intended to cover the operating to EUR 370 million (302) and their share EUR 300 million respectively. At current expenses were taken into account, the ratio of total premiums was 55 per cent (57). market rates Sampo plc is liable for inter- would decrease to 83.5 per cent (90.0). Sampo Life’s overall market share in est payments on the above instruments The solvency capital of Sampo Life Finland rose to 19.5 per cent (17.9). The of approximately EUR 10 million per Group amounted to EUR 1,077 million company is by far the biggest player in the quarter. (852) and the solvency ratio rose to 21.3 corporate segment with a market share Primasoft has a negligible impact on per cent of technical reserves (17.7). The of 39.4 per cent (29.5). Market shares the profit or loss of the Other segment. extended solvency capital of Sampo Life increased also in all Baltic countries, par- was EUR 1,410 million (1,142). A divi- ticularly in unit-linked insurance. Sampo Outlook for 2006 dend of EUR 150 million, which will be Life Group is the third biggest unit-linked At the start of 2006 the outlook for the paid to Sampo plc in March 2006, has provider in the region. world economy remains fairly positive. been deducted from the solvency capital. Sampo Life failed to achieve its targets Relatively strong growth is already largely Life insurance technical reserves on in the sale of unit-linked policies and the discounted in the equity prices, which own account amounted to EUR 6,000 premiums amounted to EUR 272 million have continued their upward momentum million (5,510), of which unit-linked (273). This is due to a drop in the single- through the last three years. There is, how- insurance reserves were EUR 1,262 mil- premium endowment policies, whereas ever, uncertainty as to how long the new lion (884). The share of unit-linked new sales of, and premiums from, unit- growth engines of the world economy, like reserves of total technical reserves grew linked pension policies developed favour- China and India, can maintain the steady to 21.0 per cent (16.0). Policyholders of ably. The sale of individual pension poli- progress. Sampo Life received a bonus of 0 – 2.0 cies grew by 40 per cent to almost 12,000 Although macroeconomic develop- per cent depending on the guaranteed policies, nearly all of which were unit- ments may lead to more modest invest- rate of their policies and the total bonuses linked contracts. Sampo Life’s market ment returns than in 2005, Sampo amounted to EUR 15.7 million (21.3). share in the Finnish unit-linked insurance Group’s profitability is expected to remain Reserves for future customer bonuses decreased to 20.8 per cent (25.5). good in 2006, as all of its business areas were EUR 13.7 million (18.3) at the year are operationally in excellent shape.

Sampo Group I Board of Directors’ Report and Financial Statements Sampo Bank Group’s operating prof- be paid on the company’s 564,700,515 itability – profit excluding extraordinary shares. The number of shares includes gains and losses – is estimated to improve 382,200 shares converted in 2005 with during 2006. Lending volume will con- warrants, which were approved by the tinue its healthy growth which, combined Board on 20 January 2006. Dividends with some relief in margin pressure and are not paid on the 7,000,000 Sampo A the rise in interest rates, will result in an shares that Sampo plc held at 31 Decem- improvement in net interest income. Fur- ber 2005. The total amount of dividends thermore, fee and commission growth is would be EUR 338,820,309.00. expected to continue and credit quality to remain firm. Although particular attention SAMPO PLC will be paid to cost efficiency, it is increas- Board of Directors ingly challenging to maintain the current cost level, as growth particularly in the Baltic countries requires more resources. The RoE target for banking and investment services is 20 per cent. The insurance technical result of If, Sampo Group’s P&C insurance operation, is expected to remain good and If remains firmly committed to a combined ratio of better than 95 per cent. Although If has a fairly low-risk investment portfolio, its result is, of course, subject to capital market development. If will focus on excellence in underwriting and on reaping further benefits from its pan-Nordic business model. Personal risk and employee benefit products are seen as long-term growth opportunities for P&C insurance following a number of product launches in 2005. The RoE target for P&C insurance operations is 17.5 per cent. Sampo Life Group’s profitability is expected to remain good. Marked- to-market results are, of course, highly dependent on capital market development. A renewed focus has been set on the sales of unit-linked insurance and on selected risk policies. The RoE target for life insurance operations is 17.5 per cent. Sampo plc, the parent company, is included in the Other segment, which reports a loss of approximately EUR 12 million per quarter, mainly because of interest payments on the financing associated with the If acquisition in 2004. Board’s dividend proposal Distributable capital and reserves totalled EUR 2, 017 million in the Group and EUR 853 million in the parent company. The Board proposes that a dividend for the financial year of EUR 0.60 per share

Sampo Group I Board of Directors’ Report and Financial Statements Sampo PLC – Board of Directors’ Report 2005 Key Figures

ifrs ifrs EURm 2005 2004 2003 2002 2001 Group key figures Revenue EURm 6,843 5,158 2,455 2,984 3,572 Profit before taxes EURm 1,295 948 486 552 1,078 % of revenue % 18.9 18.4 19.8 18.5 30.2 Return on equity (at fair values) % 28.4 26.5 14.0 1.5 –15.3 Return on assets (at fair values) % 4.4 4.0 3.3 0.8 –1.6 Equity/assets ratio % 10.1 9.1 13.6 12.4 12.1 Group solvency 1) EURm 2,124 1,504 – – – Group solvency ratio % 196.1 170.6 – – – Capital adequacy ratio 1) % – – 12.5 17.3 12.7 Average number of staff 11,730 11,898 5,529 5,977 10,162 Banking and investment services Revenue EURm 1,105 989 1,119 1,261 1,664 Net interest income EURm 394 382 404 448 469 Profit before taxes EURm 316 274 231 250 296 % of revenue % 28.6 27.7 20.7 19.9 17.8 Cost to income ratio 57.3 60.0 67.0 66.1 61.3 Return on equity 23.1 13.7 – – – Average number of staff 4,201 4,102 4,471 4,747 5,195 Property & casualty insurance *) Revenue EURm 4,398 3,054 Premiums written before reinsurers’ share EURm 3,962 2,427 Premiums earned EURm 3,709 2,697 Profit before taxes EURm 800 427 % of revenue % 18.2 14.0 Return on equity (at fair values) % 24.1 20.3 Risk ratio 2) % 66.2 64.6 Cost ratio 2) % 24.3 25.2 Loss ratio 2) % 74.1 72.6 Loss ratio before unwinding of discount 2) % 72.7 71.1 Expense ratio 2) % 17.8 18.7 Combined ratio % 91.9 91.2 Combined ratio before unwinding of discount % 90.5 89.8 Solvency margin **) EURm 3,216 2,499 Solvency capital **) EURm 3,216 2,499 % of technical provisions **) % 40.8 34.2 Solvency ratio **) % 87.5 69.8 Average number of staff 6,592 6,776

*) Figures of P&C insurance for April to December 2004 **) Based on the financial statements of If Group

10 Sampo Group I Board of Directors’ Report and Financial Statements ifrs ifrs EURm 2005 2004 2003 2002 2001 Life insurance Revenue EURm 1,240 866 1,194 1,241 1,396 Premiums written before reinsurers’ share EURm 655 528 528 613 755 Profit before taxes EURm 234 142 195 78 50 % of revenue % 18.8 16.4 16.3 6.3 3.5 Return on equity (at fair values) % 39.0 32.2 – – – Expense ratio % 93.4 100.6 86.9 97.0 108.0 Solvency margin EURm 1,074 853 857 603 644 Equalisation provision EURm – – 4 4 13 Solvency capital (IFRS) EURm 1,075 854 865 609 660 % of technical provisions (IFRS) % 21.3 17.7 18.0 12.9 14.7 Average number of staff 370 372 387 492 788 Other business 3) Revenue EURm 105 257 162 487 541 Profit before taxes EURm –49 106 –4 286 372 % of revenue % –46.7 41.1 –2.4 58.6 68.7 Average number of staff 567 648 671 738 760 Per share key figures Earnings per share EUR 1.68 1.46 0.64 0.63 1.50 Options diluted earnings per share 4) EUR 1.65 1.44 0.64 0.62 1.49 Earnings per share, incl. change in fair value reserve EUR 1.97 1.58 – – – Capital and reserves per share EUR 7.65 6.11 5.43 5.15 5.18 Net asset value per share EUR 7.67 6.16 5.64 5.26 5.67 Dividend per share 5) EUR 0.60 0.20 1.50 0.35 0.75 Dividend per earnings % 35.7 13.7 234.4 56.0 50.2 Effective dividend yield % 4.1 2.0 18.3 4.8 8.5 Price/earnings ratio 8,8 7,0 12.8 11.6 5.9 Adjusted average number of shares 1,000 564,864 558,077 553,859 555,730 555,588 Number of shares at 31 Dec. 1,000 564,701 563,762 553,920 553,853 555,623 Adjusted number of shares at 31 Dec. 1,000 575,268 566,391 553,920 553,853 555,623 Counter-value of shares at 31 Dec. EUR (appr.) 0.17 0.17 0.17 0.17 0.17 Market capitalisation EURm 8,312 5,728 4,542 4,015 4,889

A shares Adjusted average number of shares 1,000 563,664 556,877 552,659 554,530 554,388 Number of shares at 31 Dec. 1,000 563,501 562,562 552,720 552,653 554,423 Adjusted number of shares at 31 Dec. 1,000 574,068 562,562 552,720 552,653 554,423 Weighted average share price EUR 11.97 8.72 6.85 8.16 10.11 Adjusted share price, high EUR 14.95 10.24 8.53 9.95 12.70 Adjusted share price, low EUR 9.83 7.20 5.05 6.02 7.70 Adjusted closing price EUR 14.72 10.16 8.20 7.25 8.80 Share trading volume during accounting period 1,000 663,491 648,086 188,014 179,173 231,389 Relative share trading volume % 117.7 116.4 34.0 32.3 41.7

B shares Adjusted average number of shares 1,000 1,200 1,200 1,200 1,200 1,200 Number of shares at 31 Dec. 1,000 1,200 1,200 1,200 1,200 1,200 Adjusted number of shares at 31 Dec. 1,000 1,200 1,200 1,200 1,200 1,200

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Sampo Group I Board of Directors’ Report and Financial Statements 11 Sampo PLC – Board of Directors’ Report 2005

1) Group solvency for year 2005 and 2004 is calculated according to the consolidation method defined in Chapter 3 of the Act on the Supervision of Financial and Insurance Conglomerates, which entered into force on 1 January 2005. Solvency ratio is defined as the ratio of own funds to the sum of minimum requirements calculated under sectoral rules. Previously Group’s Capital adequacy ratios have been calculated according to the Act on Credit Institutions, Chapter 9,72-81 §.

2) Key figures for P&C Insurance are based on activity based costs and cannot, therefore, be calculated directly from the consolidated income statement.

3) The income of other business includes the income from If Group, accounted for by the equity method, for the first quarter of 2004

4) The dilution effect has been calculated as if all the remaining subscription rights (4,762,510/the option programme of 2000 at the end of December, 2005) would have been realised. One subscription right entitles to subscribe 5 shares.

5) The Board of Director’s proposal to the Annual General Meeting for the accounting period 2005. The dividend for 2004 was EUR 0.20.

In calculating the key figures the tax corresponding to the result for the accounting period has been taken into account. The valuation differences of investment property and held-to-maturity debt securities have been taken into account in return on assets, return on equity, equity/assets ratio and net asset value per share. Additionally, the change in fair value reserve has been taken into account in return on assets and return on equity. A deferred tax liabilities has been deducted from valuation differences.

In calculating the net asset value per share and the return on equity as per 2002 and 2003, an interpretation of the principle of fairness in life insurance has been taken into account, according to which the owners’ share of the valuation differences is a standard 25%. Previously the valuation differences have not been included in the capital and reserves. As a result of a change in accounting practice in 2004, the target level for total policyholder bonuses was kept as before, but the division of valuation differences in accounting was abandoned. Accordingly, the valuation differences of investments for 2005 and 2004 have been treated entirely as capital and reserves in calculating the above key figures.

If is consolidated as a subsidiary in Sampo Group’s accounts as of April 1, 2004. Accordingly If figures have been taken into account line by line in the consolidated profit and loss account and balance sheet. In the comparison periods and between January 1, 2004 and March 31, 2004 If has been treated as an associated company.

12 Sampo Group I Board of Directors’ Report and Financial Statements Calculation of Key Figures

The key figures for the Banking and The key figures for the insurance busi- Investment Services and the Other business have been calculated according to the ness have been calculated according to the decree of the Ministry of Finance and the standard 3.1 of the Financial Supervision. specifying instruction 12/002/2005 of the Insurance Supervisory Authority.

Group key figures Property & casualty insurance + insurance premiums Revenue + net income from investments + banking and investment services revenue + other operating income + property & casualty insurance revenue – claims incurred + life insurance revenue – staff costs + other business revenue – other operating expenses ± Group elimination with result impact Life insurance Banking and investment services + insurance premiums + interest income + net income from investments + net income from investments excl. profit / loss from + other operating income associates – claims incurred + fee and commission income – change in liabilities for investment and insurance contracts + net income from financial transactions – staff costs + other operating income – other operating expenses

Property & casualty insurance Other business + premiums earned before reinsurers’ share Calculated using the formula shown above for banking and + net income from investments investment services profit before taxes. + other income Return on equity (at fair values), % Life insurance + profit before taxes + premiums written before reinsurers’ share ± revaluation entered into / withdrawn from fair value reserve + net income from investments ± change in valuation differences on investments + other income – tax (incl. change in deferred tax relating to valuation differences on investments) x 100% Other business + total equity Calculated using the formula shown above for banking and ± valuation differences on investments after deduction of investment services revenue deferred tax (average of values on 1 Jan. and 31 Dec.)

Profit before taxes Return on assets (at fair values), % + banking and investment services profit before taxes + operating profit + property & casualty insurance profit before taxes + interest and other financial charges + life insurance profit before taxes + calculated interest on technical provisions + other business profit before taxes ± revaluation entered into / withdrawn from fair value reserve ± Group elimination with result impact ± change in valuation differences on investments x 100% Banking and investment services + balance sheet total + net interest income – technical provisions relating to unit-linked insurance + net income from financial transactions ± valuation differences on investments (average of values + net fee and comission income on 1 Jan. and 31 Dec.) ± impairment losses on loans and receivables + net income from investments + other operating income – staff costs – other operating expenses

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Sampo Group I Board of Directors’ Report and Financial Statements 13 Sampo PLC – Board of Directors’ Report 2005

Equity/assets ratio (at fair values), % Risk ratio, % + total equity + claims incurred ± valuation differences on investments after – claims settlement expenses deduction of deferred tax x 100% x 100% insurance premiums + balance sheet total ± valuation differences on investments Cost ratio, % + operating expenses Average number of staff + claims settlement expenses Average of month-end figures, adjusted for part-time x 100% insurance premiums staff (Full Time Equivalent) Loss ratio, % Banking and investment service key figures claims incurred x 100% Revenue insurance premiums Formula shown above in connection with calculation Loss ratio before unwinding of discount, % of Group key figures. claims incurred before unwinding of discount x 100% Profit before taxes insurance premiums before unwinding of discount Formula shown above in connection with calculation Expense ratio, % of Group key figures. operating expenses Return on equity (at fair values), % x 100% insurance premiums Formula shown above in connection with calculation of Group key figures. Combined ratio, % Loss ratio + expense ratio Cost to income ratio – staff costs Combined ratio before unwinding of discount, % – other operating expenses Loss ratio before unwinding of discount + expense ratio + net interest income + net income from financial transactions Solvency margin + net fee and comission income + equity after proposed profit distribution + net income from investments ± valuation difference on investment + other operating income – intangible assets + capital securities Property & casualty insurance key figures ± deferred tax ± other required items (Ministry of Finance decree) Revenue Solvency capital (IFRS) Formula shown above in connection with calculation + solvency margin of Group key figures. + equalisation provision Operating profit + minority intrest

Formula shown above in connection with calculation Solvency capital, % of technical provision of Group key figures. + solvency capital x 100% Return on equity (at fair values), % + liabilities for insurance and investment contracts Formula shown above in connection with calculation – reinsurers’ share of insurance liabilities of Group key figures. – equalisation provision

Solvency ratio, % + solvency capital x 100% + insurance premiums from 12 months

14 Sampo Group I Board of Directors’ Report and Financial Statements Life insurance key figures Earnings per share incl. change in fair value reserve + profit before taxes Revenue – tax Formula shown above in connection with calculation ± minority interest of Group key figures. ± revaluation entered into / withdrawn from fair value reserve Operating profit adjusted average number of shares Formula shown above in connection with calculation of Group key figures. Capital and reserves per share equity attributable to parent company’s equityholders Return on equity (at fair values), % adjusted number of shares at balance sheet date Formula shown above in connection with calculation of Group key figures. Net asset value per share

Expense ratio + equity attributable to paret company’s equityholders ± valuation differences on investments + operating expenses before change in deferred ± deferred tax relating to valuation differences acquisition costs on investments + claims settlement expenses x 100 % adjusted number of shares at balance sheet date load income Dividend per share, % Solvency margin dividend for the accounting period + equity attributable to parent company’s x 100 % equityholders after proposed profit distribution adjusted number of shares at balance sheet date ± valuation difference on investment Dividend per earnings, % – intangible assets + capital securities dividend per share x 100 % ± deferred tax (incl. deferred tax from fair value earnings per share reserve and profit) ± other required items (Ministry of Finance decree) Effective dividend yield, %

Solvency capital dividend per share x 100 % Formula shown above in connection with calculation adjusted closing share price at 31 Dec. of P&C insurance solvency capital. Price/earnings ratio Solvency ratio, % of technical provision adjusted closing share price at 31 Dec. + solvency capital x 100 % earnings per share + liabilities for insurance and investment contracts – reinsurers’ share of insurance liabilities Market capitalisation – equalisation provision number of shares at 31 Dec. – 75 % x technical provisions relating to unit-linked x closing share price at 31 Dec.

Per-share key figures Relative share trading volume, % number of shares traded through the Earnings per share Helsinki Stock Exchange x 100 % + profit before taxes adjusted average number of shares – tax ± minority interest adjusted average number of shares

Sampo Group I Board of Directors’ Report and Financial Statements 15 IFRS FINANCIAL STATEMENTS Consolidated Income Statement

EURm Note 2005 2004 change

Net interest income 3 310 297 13 Net income from financial transactions 4 75 64 11 Net fee and commission income 5 203 178 25 Impairment losses on loans and receivables 6 1 11 –9 Insurance premiums 7 4,358 3,202 1,156 Net income from investments 8 1,080 689 390 Other operating income 72 94 –22 Total operating income 6,100 4,535 1,564

Claims incurred 9 –3,014 –2,206 –808 Change in liabilities for insurance and investment contracts 10 –390 –191 –199 Staff costs 11 –706 –567 –139 Other operating expenses 12 –695 –617 –78 Total operating expenses –4,805 –3,580 –1,225

Profit before taxes from continuing operations 1,295 955 340

Profit before taxes from discontinued operations 0 –7 7

Profit before taxes 1,295 948 347

Taxes 26 –332 –100 –232 Profit for the financial year 963 848 115

Attributable to Equity holders of parent company 949 817 Minority interest 14 31

Earning per share (EUR) 13 Basic 1.68 1.46 Diluted 1.65 1.44

16 Sampo Group I Board of Directors’ Report and Financial Statements IFRS FINANCIAL STATEMENTS Consolidated Balance Sheet

EURm Note 2005 2004

Assets Cash and balances at central banks 16 1,665 1,163 Financial assets at fair value through p/l 17 2,537 2,751 Loans and receivables 18 18,918 15,869 Investments 19, 20 15,312 13,981 Investments related to unit-linked contracts 21 1,262 882 Reinsurers’ share of insurance liabilities 29 558 696 Intangible assets 22 843 944 Property, plant and equipment 23 135 155 Other assets 24 1,581 1,472 Tax assets 25 173 224 Total assets 42,985 38,138

Liabilities Financial liabilities at fair value through p/l 17 649 589 Amounts owed to credit institutions and customers 27 12,260 11,037 Debt securities in issue 28 9,647 7,928 Liabilities for insurance and investment contracts 29 12,623 12,226 Liabilities for unit-linked insurance and investment contracts 30 1,262 884 Other liabilities 31 1,650 1,610 Tax liabilities 25 545 399 Total liabilities 38,637 34,673

Equity 34 Share capital 96 95 Reserves 1,814 1,622 Retained earnings 2,412 1,723 Equity attributable to parent company’s equityholders 4,322 3,440 Minority interest 26 26 Total equity 4,348 3,465

Total equity and liabilities 42,985 38,138

Sampo Group I Board of Directors’ Report and Financial Statements 17 IFRS FINANCIAL STATEMENTS Statement of Changes in Equity

share fair share premium legal value retained minority EURm capital account reserve reserve earnings total interest total

Equity at 1 Jan. 2004, IFRS 93 971 370 170 1,720 3,324 17 3,340

Cash flow hedges: - recognised in equity during the financial year 3 3 3 - recognised in p/l –10 –10 –10 Financial assets available-for-sale - change in fair value 209 209 209 - recognised in p/l –138 –138 –138 Exchange rate translation difference 16 16 16 Profit for the financial year 817 817 31 848 Total income and expenses recognised for the period 63 833 897 31 928 Dividends –831 –831 –831 Recognition of undrawn dividends 1 1 1 Subscription for shares with options 2 48 49 49 Acquisition of minority interest –23 –23 Equity at 31 Dec. 2004 95 1,019 370 233 1,723 3,440 26 3,465

Cash flow hedges: - recognised in equity during the financial year 3 3 3 - recognised in p/l –8 –8 –8 Financial assets available-for-sale - change in fair value 375 375 375 - recognised in p/l –207 –207 –207 Exchange rate translation difference –62 –62 –62 Profit for the financial year 949 949 14 963 Total income and expenses recognised for the period 163 887 1,049 14 1,063 Dividends –113 –113 –14 –127 Recognition of undrawn dividends 4 4 4 Subscription for shares with options 1 29 30 30 Repurchase of own shares –88 –88 –88 Equity at 31 Dec. 2005 96 1,048 370 396 2,412 4,322 26 4,348

18 Sampo Group I Board of Directors’ Report and Financial Statements IFRS FINANCIAL STATEMENTS Cash Flow Statement

EURm 2005 2004

Cash flows from operating activities Profit before taxes 1,295 948 Adjustments: Depreciation and amortisation 94 95 Unrealised gains and losses arising from valuation –215 98 Realised gains and losses on investments –593 –361 Impairment losses on loans and receivables 13 4 Change in liabilities for insurance and investment contracts 1,200 92 Other adjustments 23 –33 Adjustments total 523 –105

Change (+/–) in assets of operating activities Financial assets at fair value through p/l 257 –201 Loans and receivables –3,058 –594 Investments –1,109 –42 Other assets –146 95 Total –4,056 –743

Change (+/–) in liabilities of operating activities Financial liabilities at fair value through p/l –46 –39 Amounts owed to credit institutions and customers 1,303 298 Other liabilities 10 –108 Paid taxes –177 –178 Total 1,091 –27

Net cash used in operating activities –1,147 73

Cash flows from investing activities Investments in group and associated undertakings – –1,421 Proceeds from the sale of group and associated undertakings 102 1 Net investment in equipment and intangible assets –27 –42 Net cash flow from investing activities 75 –1,462

Cash flows from financing activities Subscription of share options 30 49 Acquisition of own shares –88 – Dividends paid –127 –839 Issue of debt securities 15,022 14,763 Repayments of debt securities in issue –13,232 –11,792 Net cash from financing activities 1,605 2,182

Total cash flows 533 793

Cash and cash equivalents at 1 January 1,250 461 Effects of exchange rate changes 4 – Cash and cash equivalents at 31 December 1,787 1,254 Net increase in cash and cash equivalents 533 793

The items of the statement of cash flows cannot be directly concluded from the balance sheets due to e.g. exchange rate differences, and acquisitions and disposals of subsidiaries during the period.

Cash and cash equivalents include cash at bank and in hand EURm 318 (210), balances with central banks EURm 1,253 (886), loans and advances to credit institutions repayable on demand EURm 122 (87) and short-term deposits EURm 94 (71).

Sampo Group I Board of Directors’ Report and Financial Statements 19 IFRS FINANCIAL STATEMENTS Note to the Cash Flow Statement

Sampo Plc sold during 2005 its Polish subsidiaries, Sampo PTE S.A. engaged in investment service and life insurance company Sampo T.U. Zycie S.A., as well as Mandatum Private Equity Funds Ltd engaged in investment service in Finland. EURm 2005 Sale price Sampo PTE S.A. 93 Sampo T.U. Zycie S.A. 2 Mandatum Private Equity Funds Ltd 4

Disposed cash and cash equivalents Sampo PTE S.A. 0 Sampo T.U. Zycie S.A. 2 Mandatum Private Equity Funds Ltd 0

Balance sheet items of sold companies 2005 S sampo sampo mandatum P T pte t.U. Zycie private EURm s.A. s.A. Equity Funds Assets Cash and cash equivalents 0 2 0 Financial assets at fair value through p/l – – 0 Loans and receivables 7 – – Investments related to unit-linked insurance – 15 – Other assets 0 1 2 Total assets 7 18 2

Liabilities Amounts owed to credit institutions and customers – – 0 Liabilities for insurance and investment contracts – 16 Other liabilities 2 1 1 Total liabilities 2 17 1 Equity 5 2 1 Total equity and liabilities 7 18 2

20 Sampo Group I Board of Directors’ Report and Financial Statements Sampo Plc acquired during 2004 shares of If Skadeförsäkring Holding AB, 51.89 per cent on 6 May 2004 and 10.06 per cent on 5 October in the same year. Sampo’s previous holding in the company was 38,05 per cent. Values used in the cash flow statement are balance sheet values of the holdings at the acquisition dates.

On 17 November 2004 Sampo Bank plc acquired Sampo Banka (AS Mara¯s Banka) in Latvia. EURm 2004 Acquisition cost Sampo Banka 13 If Skadeförsäkring Holding AB 1,649

Cash and cash equivalents of acquired companies Sampo Banka 5 If Skadeförsäkring Holding AB 204

Balance sheet items of acquired companies 2004 S sampo Banka if Assets Cash and cash equivalents 3 204 Financial assets at fair value through p/l – 27 Loans and receivables 46 – Investments 0 4,972 Intangible assets – 75 Property, plant and equipment 0 22 Other assets 0 890 Tax assets – 145 Total assets 49 6,335

Liabilities Financial liabilities at fair value through p/l – 22 Amounts owed to credit institutions and customers 41 – Debt securities in issue – 197 Liabilities for insurance and investment contracts – 4,366 Other liabilities 1 486 Tax liabilities – 112 Total liabilities 42 5,184 Equity 7 1,151 Total equity and liabilities 49 6,335

Sampo Group I Board of Directors’ Report and Financial Statements 21 IFRS FINANCIAL STATEMENTS Notes to the Financial Statements

Notes to the Financial Statements: page Summary of Significant Accounting Policies Summary of Significant Accounting Policies 22 Risk Management 32 Segment Information 50 Other Notes 55 Basis for preparation mates and judgements which may have 1 Transition to International Financial an impact on income, expenses, assets Sampo Group has prepared the consoli- Reporting Standards (IFRS) 55 and liabilities and contingent liabilities. dated financial statements for 2005 in 2 Business Combinations 59 Although these estimates and judgements compliance with International Financial 3 Net Interest Income 62 are based on the best information avail- Reporting Standards (IFRSs) as adopted 4 Net Income from Financial Transactions 63 able on the balance sheet date, the actual by the EU. The standards and interpre- 5 Fee and Commission Income and results may differ from them. tations applied are those effective at 31 Expenses 64 The areas involving a higher degree December 2005. Hedge accounting has 6 Impairment Losses on Loans and of estimation and judgement include the been applied in compliance with IAS 39 Receivables 64 fair valuing of unlisted financial assets and as approved by the International Account- 7 Insurance Premiums 65 liabilities and investment properties, the ing Standards Board (IASB), without 8 Net Income from Investments 67 impairment of financial assets and good- using the carved out version endorsed by 9 Claims Incurred 70 will, and the assumptions used in actuarial the EU on 19 November 2004. The con- 10 Change in Liabilities for Insurance valuations. solidated financial statements for the year and Investment Contracts 73 The consolidated financial statements ended 31 December 2004 were prepared 11 Staff Cost 74 are presented in euro (EUR), rounded to in accordance with the applicable and 12 Other Operating Expenses 75 the nearest million. regulatory requirements in Finland (Finn- 13 Earning per Share 76 The Board of Directors of Sampo Oyj ish Accounting Standards, FAS). 14 Financial Assets and Liabilities 77 accepted the financial statements for issue Disclosures of financial assets and 15 Fair Values 78 on 15 February 2006. financial liabilities are presented in 16 Cash and Balances at Central Banks 79 accordance with IFRS 7 ‘Financial Instru- 17 Financial Assets and Liabilities at Fair Consolidation ments: Disclosures’, which Sampo adopt- Value Through p/l 80 ed early from 1 January 2005 as allowed Subsidiaries 18 Loans and Receivables 85 by the transitional provisions of the stand- 19 Investments 86 The consolidated financial statements ard. Similarly, the amendment to IAS 1 20 Investments in Associates 92 combine the financial statements of ‘Capital disclosures’ was adopted from 1 21 Investments Related to Unit-linked Sampo plc and all its subsidiaries. Entities January 2005, in accordance with the tran- Contracts 93 qualify as subsidiaries if the Group has the sitional provisions of the standard. Capital 22 Intangible Assets 94 controlling power. The Group exercises disclosures are presented in Notes togeth- 23 Property, Plant and Equipment 96 control if its shareholding is more than 50 er with the risk management disclosures. 24 Other Assets 98 per cent of the voting rights or it other- Sampo began to prepare the consoli- 25 Deferred Tax Assets and Liabilities 99 wise has the power to exercise control over dated financial statements in compliance 26 Taxed 100 the financial and operating policies of the with the International Financial Report- 27 Amounts Owed to Credit Institutions entity. Subsidiaries are consolidated from ing Standards (IFRS) from 1 January and Customers 100 the date on which control is transferred to 2005 and applied IFRS 1 ‘First-time 28 Debt Securities in Issue 101 the Group, and cease to be consolidated Adoption of International Financial 29 Liabilities from Insurance and from the date that control ceases. Reporting Standards’. The transition Investment Contracts 103 The acquisition method of accounting date was 1 January 2004. The compara- 30 Liabilities from Unit-linked Insurance is used for the purchases of subsidiaries. tive figures for 2004 have been restated to and Investment Contracts 104 The cost of an acquisition is allocated to comply with IFRS. The major impact of 31 Other Liabilities 105 the identifiable assets, liabilities and con- adopting IFRS is presented more detailed 32 Employee Benefits 107 tingent liabilities, which are measured at in Note 1 Transition to IFRS. 33 Continent Liabilities and the fair value of the date of acquisition. The financial statements have been Commitments 109 The excess of the cost of an acquisition prepared under the historical cost conven- 34 Equity and Reserves 113 over the Group’s share of the fair value tion, modified by changes in fair value, 35 Dividends 116 of the identifiable net assets acquired is amortisation, depreciation or impairment 36 Related Party Disclosures 116 recorded as goodwill. losses, depending on the accounting treat- 37 Legal Proceedings 116 Consistent accounting policies are ment of the respective items. 38 Investment in Subsidiaries 117 used throughout the Group for the pur- The preparation of the financial state- 39 Investment in Shares and poses of consolidation. All intra-group ments in conformity with IFRS requires Participations other than Subsidiaries transactions and balances are eliminated the use of certain critical accounting esti- and Associates 118 upon consolidation.

22 Sampo Group I Board of Directors’ Report and Financial Statements Associates are recognised as translation gains and effective interest rate, all the transaction Associates are entities in which the Group losses in profit or loss. Translation dif- costs and all other premiums or discounts. has significant influence, but no control ferences arising from equities classified Once a financial asset has been writ- over the financial management and oper- as available-for-sale financial assets are ten down as a result of an impairment loss, ating policy decisions. This is generally included directly in the fair value reserve interest income is thereafter recognised demonstrated when the Group holds in in equity. using the original effective interest rate of excess of 20 per cent, but no more than 50 The income statements of Group that asset. When an uncertainty arises about per cent, of the voting rights of the enti- entities whose functional currency is other the collectibility of the interest, the uncol- ties. Investments in associates are treated than euro are translated into euro at the lectible amount, or the amount in respect of by the equity method of accounting, in average rate for the period, and the bal- which recovery has ceased to be probable, is which the investment is initially recorded ance sheets at the rates prevailing at the recognised as an impairment loss. at cost and increased (or decreased) each balance sheet date. The resulting transla- Dividends on equity securities are year by the Group’s share of the post- tion differences are included in equity. recognised as revenue when the right to acquisition net income (or loss), or other Goodwill and fair value adjustments receive payment is established. arising on the acquisition of a foreign movements reflected directly in the equity Fees and commissions of the associated entity. Goodwill arising entity are treated as if they were assets and on the acquisition is included in the cost liabilities of the foreign entity. Fees and commissions which are an inte- of the investment. Unrealised gains (loss- Segment information gral part of the effective interest rate of es) on transactions are eliminated to the a financial instrument are deferred and extent of the Group’s interest in the entity. The Group’s primary segmentation is treated as an adjustment to the effective Investments in associates are included based on business areas whose risks and interest rate. Such fees may be origination in the balance sheet item ‘Investments’ performance bases as well as regulatory fees (including compensation for activities and the Group’s share of the results of environment differ from each other. The such as evaluating the borrower’s financial associates in ‘Net income from investment control and management of business and condition, evaluating and registering guar- activities’ in the income statement. management reporting is organised in antees, collateral and other securities and accordance with the business segments. documentation) and commitment fees, Foreign currency The Group’s business segments are bank- for example. If a commitment fee expires translation ing and investment services, P&C insur- without an entity making a loan, the fee is The consolidated financial statements are ance, life insurance and other operations. recognised as revenue upon expiry. presented in euro, which is the functional Other operations comprise the operations The fees and transaction costs of and reporting currency of the Group and of the holding company and the Primasoft financial instruments measured at fair the parent company. Oy information technology firm. value through profit or loss are recognised Items included in the financial state- The Group’s secondary segmentation in profit or loss when the instrument is ments of each of the Group entities are is based on geographical distribution. The initially recognised. measured using their functional currency, reported segments are Finland, Sweden, Fees for other financial services being the currency of the primary eco- Norway, Denmark, the Baltic countries include fees recognised as revenue when nomic environment in which the entity and other countries. services are provided (e.g. those charged operates. Foreign currency transactions are Inter-segment pricing is based on for servicing a loan). Fees earned upon translated into the appropriate functional market prices. Inter-segment transactions, the execution of a significant act are rec- currency using the exchange rates pre- assets and liabilities are eliminated in the ognised as revenue when the act is com- vailing at the dates of transactions or the consolidated financial statements on a pleted. Such fees are e.g. syndication fees average rate for a month. Monetary bal- line-by-line basis. which are recognised in profit or loss when the syndication has been completed. ance sheet items denominated in foreign Interest and dividends currencies are translated into the func- The costs of acquiring new and tional currency at the rate prevailing at the Interest income and expenses are rec- renewed insurance business are treated balance sheet date. Non-monetary balance ognised in the income statement using in the Life Insurance business as fee and sheet items measured at historical cost are the effective interest rate method. This commission expenses under ‘Other oper- presented in the balance sheet using the method recognises income and expenses ating expenses’. In the P&C Insurance historical rate existing at the date of the on the instrument evenly in proportion to business they are treated as deferred acqui- transaction. the amount outstanding over the period sition costs, and are accordingly deferred Translation differences arising from to maturity. The calculation of effective and amortised. translation of transactions and monetary interest includes all the fees and points In the insurance business, fees and balance sheet items denominated in for- received or paid between parties to the commissions paid for investment activi- eign currencies into functional currency contract that are an integral part of the ties are included in ‘Net income from investments’.

Sampo Group I Board of Directors’ Report and Financial Statements 23 IfRS FINANCIAL STATEMENTS: Notes to the Accounts

Insurance premiums Financial assets and financial and they are reported to the Group key liabilities at fair value management personnel at fair value. Insurance premiums in the income state- through profit or loss In the P&C Insurance business, finan- ment consist of premiums earned for cial investments are primarily designated P&C insurance and premiums written Financial assets and liabilities at fair value as financial assets at fair value through for Life insurance. P&C insurance con- through profit or loss comprise trading profit or loss. Investments comprise debt tracts are primarily of short duration (1 assets and liabilities, derivatives held for and equity securities. In the Life insurance year), so that premiums written are recog- trading, and financial assets designated as business, financial assets designated as at nised as earned on a pro rata basis, adjust- at fair value through profit or loss. fair value through profit of loss are investing them by a change in the provisions Trading assets and liabilities, and ments related to unit-linked insurance, for unearned premium. In Life insurance, financial derivative instruments which are presented separately in the bal- premiums are not adjusted, as the benefit ance sheet. Also the corresponding liabili- period extends far into the future. There- Trading assets comprise debt securities ties are presented separately. In addition, fore the insurance premium and related and equities acquired principally for the fincancial investments which are manaded benefits do not usually match during the purpose of selling or repurchasing them at fair value and reported to the Group same period. The change in the provisions in the near term. Trading liabilities consist key management personnel at fair value for unearned premiums is presented sepa- of obligations to deliver trading securities are designated as financial assets at fair rately as Change in insurance and invest- which the Group has sold to third parties value through profit or loss. In Banking ment contract liabilities in expenses. but does not own (short selling). Deriva- tive instruments that are not designated and Investment Services, financial assets Financial assets as hedges and are not effective as such designated as at fair value through profit and liabilities are classified as derivatives for trading or loss are debt securities used in manag- purposes. ing the collateral and liquidity portfolio. Based on the measurement practice, Trading assets and liabilities and financial assets and liabilities are classified Loans and receivables financial derivatives held for trading are in the following categories: financial assets initially recognised at cost which is the fair Loans and receivables comprise non- at fair value through profit or loss, loans value of the consideration paid or given, derivative financial assets with fixed or and receivables, held-to-maturity invest- with transaction costs included directly determinable payments that are not quot- ments, available-for-sale financial assets, in the income statement, and are subse- ed in an active market and that the Group financial liabilities at fair value through quently remeasured at fair value. Deriva- is not intending to sell immediately or in profit or loss, and other liabilities. tive instruments are carried as assets when the short term. The category also compris- Purchases and sales of financial assets the fair value is positive, and as liabilities es cash and balances with central banks. at fair value through profit or loss, held- when the fair value is negative. Gains and Loans and receivables are initially rec- to-maturity investments and available- losses arising from changes in fair value ognised at cost which is the fair value of for-sale financial assets are recognised and or realised on disposal, together with the the consideration given, including trans- derecognised on the trade date, which is related interest income and expenses and action costs that are directly attributable the date on which the Group commits dividends, are recognised in the income to the acquisition of the asset. Loans and to purchase or sell the asset. Loans and statement. receivables are subsequently measured at receivables are recognised when cash is amortised cost using the effective interest advanced to the borrower. Financial assets designated as at rate method. Financial assets and liabilities are off- fair value through profit or loss set and the net amount is presented in the Held-to-maturity investments Financial assets designated as at fair value balance sheet only when the Group has through profit or loss are assets which, at Held-to-maturity investments are non- a legally enforceable right to set off the inception, are irrevocably designated as derivative financial assets with fixed or recognised amounts and it intends to set- such. They are initially recognised at cost determinable payments and fixed maturity tle on a net basis, or to realise the asset and which is the fair value of the considera- that the Group has the positive inten- settle the liability simultaneously. tion given, and subsequently remeasured tion and ability to hold until maturity. Financial assets are derecognised when at fair value. Gains and losses arising from Held-to-maturity investments are initially the contractual rights to receive cash flows changes in fair value, or realised on dis- recorded at cost which is the fair value of have expired or the Group has transferred posal, together with the related interest the consideration given plus any directly substantially all the risks and rewards of income and dividends, are recognised in attributable transaction costs, and are ownership. Financial liabilities are derec- the income statement. subsequently measured at amortised cost ognised when the obligation specified in According to the Group risk manage- using the effective interest rate method. the contract is discharged or cancelled or ment policy, investments are managed at expires. fair value in order to have the most realistic and real-time picture of investments,

24 Sampo Group I Board of Directors’ Report and Financial Statements Available-for-sale financial assets Fair value strated by one or more of the following loss events: Available-for-sale financial assets are non- The fair value of financial instruments - Overdue payments: Interest or principal derivative financial investments that are is determined primarily by using quoted payments more than 90 days overdue. designated as available for sale and are not prices in active markets. Financial assets categorised into any other category. Avail- are measured at the bid price and financial - Forced concession: Decision the Group able-for-sale financial assets comprise liabilities at the asking price. If there are would not have made at the given terms, debt and equity securities. items in a position offsetting each other’s if the customer had not had existing In the Life Insurance business, IFRS 4 market position, the mid price may be exposures in the Group (e.g. reduction Insurance Contracts provides that insur- used to that extent. If a published price of an interest rate or a material abate- ance contracts with a discretionary partici- quotation does not exist for a financial ment of interest or principal, change pation feature are measured in accordance instrument in its entirety, but active mar- in the status of a loan to subordinate, with national valuation principles (except kets exist for its component parts, the fair voluntary restructuring or rearrange- for the equalisation reserve) rather than value is determined on the basis of the ment of payments). at fair value. These contracts and invest- relevant market prices of the component - Legal restructuring: Corporate restruc- ments made to cover shareholders’ equity parts. turing and corresponding rearrange- are managed in their entirety and are clas- If a market for a financial instruments for personal customers. sified as available-for-sale financial assets. ment is not active, or the instrument is - Bankruptcy: Declared bankrupt. In other segments, available-for- not quoted, the fair value is established by When a default occurs, the impairment of sale financial assets comprise assets that, using generally accepted valuation tech- a loan is assessed. The amount of the loss although they are not acquired for trading niques including recent arm’s length mar- is measured as the difference between the purposes, might not be held to maturity. ket transactions between knowledgeable, loan’s carrying amount and the present Available-for-sale financial assets are willing parties, reference to the current fair value of estimated future cash flows initially recognised at cost which is the fair value of another instrument that is sub- (excluding future credit losses that have value of the consideration given, including stantially the same, discounted cash flow not yet been incurred), discounted at the direct and incremental transaction costs. analysis and option pricing models. loan’s original effective interest rate, less They are subsequently remeasured at fair If the fair value of a financial asset the collateral’s fair value. The difference is value. Changes in fair value are included cannot be determined, historical cost is recognised as an impairment loss in profit as a separate component of equity. Interest deemed to be a sufficient approximation or loss. The costs of obtaining and selling income and dividends are recognised in of fair value. The amount of such assets in collateral are included in the calculation of profit or loss. When the available-for-sale the Group balance sheet is negligible. assets are sold, the cumulative change in the cash flows of a collateralised loan. the fair value is transferred from equity Impairment of The impairment of loans is assessed and recognised together with realised financial assets individually. The carrying amount of loans gains or losses in profit or loss. The cumu- that are individually significant is reduced Sampo assesses on each balance sheet date lative change in the fair value is also trans- directly, whereas that of other loans is whether there is any objective evidence ferred to profit or loss when the assets reduced through the use of an allowance that a financial asset may be impaired. A are impaired and the impairment loss account. Amounts recognised into the financial asset is impaired and impair- recognised. allowance account are written off against ment losses are incurred, if there is objec- the carrying amount of an impaired loan, Other financial liabilities tive evidence of impairment as a result of when the recovery has ceased to be prob- one or more loss events that occurred after Other financial liabilities comprise depos- able, at the latest. the initial recognition of the asset, and if its and other liabilities to credit institu- Loans that would be overdue or that event has an impact on the estimated tions and customers, debt securities in impaired unless their terms were renegoti- future cash flows of the financial asset that issue, and other financial liabilities. ated will be subject to a ‘forced concession’, can be reliably estimated. Other financial liabilities are recog- and an impairment loss will be recognised nised when the consideration is received Financial assets carried to the extent that the fair value of the col- and measured to amortised cost, using the at amortised cost lateral does not cover the estimated future effective interest rate method. cash flows discounted at the loan’s original The objective evidence of the customer’s If debt securities issued are redeemed effective interest rate. ability to pay all contractual payments is before maturity, they are derecognised If, in a subsequent period, the amount based on a default rating. There is objec- and the difference between the carry- of the impairment loss decreases, and the tive evidence of impairment if the paying amount and the consideration paid at decease can be related objectively to an ment status of a customer is rated as redemption is recognised in profit or loss. event occurring after the impairment was ‘default’, which, in the case of loans and recognised (the default status is removed), held-to-maturity investments, is demon- the previously recognised impairment

Sampo Group I Board of Directors’ Report and Financial Statements 25 IfRS FINANCIAL STATEMENTS: Notes to the Accounts

loss shall be reversed either directly or by Derivatives held for trading Fair value hedging adjusting the allowance account. Derivative instruments that are not des- Fair value hedging is used to hedge Available-for-sale financial assets ignated as hedges are classified as held for individual fixed interest rate loans, debt trading. They are measured at fair value securities in issue, as well as index-linked The impairment of available-for-sale and the change in fair value, together deposits and index-linked debt securities financial assets is monitored through an with realised gains and losses and inter- in issue. The hedging instruments used investment plan. The credit risk limits by est income and expenses, is recognised in include interest rate swaps, interest rate issuer have been determined in the invest- profit or loss. Derivatives used for hedg- and cross currency swaps and, for index- ment plan and the plan is followed daily. ing, but which do not qualify for hedge linked items, index options. In addition, The objective evidence of an impairment accounting as required by IAS 39, are fixed interest rate loan portfolios are of available-for-sale financial assets is treated as held for trading. hedged by using interest rate swaps. based on a separate assessment, which is Changes in the fair value of derivative Hedge accounting done if the credit rating of an issuer has instruments that are documented as fair declined or the entity is placed on watch- Sampo Group hedges its operations value hedges and are effective in relation list, or there is a significant or prolonged against interest rate risks, currency risks to the hedged risk are recognised in profit decline in the fair value of an equity and price risks through fair value hedging or loss. In addition, the hedged assets and instrument below its cost. When the and cash flow hedging. Fair value hedging liabilities are measured at fair value during observable data indicates that an impair- is used to protect against changes in the the period for which the hedge was des- ment has occurred, the cumulative loss fair value of recognised assets or liabilities, ignated, with changes in fair value recog- recognised directly in equity is removed while cash flow hedging is used to protect nised in profit or loss. from equity and recognised in profit or against the variability of the cash flows of Cash flow hedging loss. recognised assets or liabilities which are The cumulative loss removed from attributable to a particular risk and could Cash flow hedging is used to hedge equity and recognised in profit or loss is affect profit or loss. portfolios of floating rate loans. Deriva- the difference between the acquisition cost Hedge accounting is applied to tive instruments which are designated and current fair value, less any impairment hedges that are effective in relation to the as hedges and are effective as such are loss on that instrument previously recog- hedged risk and meet the hedge account- measured at fair value. The effective part nised in profit or loss. ing requirements of IAS 39. The hedg- of the change in fair value is recognised If, in a subsequent period, the fair ing relationship between the hedging in the fair value reserve in equity and the value of a debt instrument increases and instrument and the hedged item, as well remaining uneffective part is recognised in the increase can be objectively related as the risk management objective and profit or loss. to an event occurring after the impair- strategy for undertaking the hedge, are The cumulative change in fair value is ment loss was recognised in profit or loss, documented at the inception of the hedge. transferred from equity and recognised in the impairment loss shall be reversed by In addition, the effectiveness of a hedge profit or loss in the same period that the recognising the amount in profit or loss. is assessed both at inception and on an hedged cash flows affect profit or loss. Impairment losses recognised in profit of ongoing basis, to ensure that it is highly When a hedging instrument expires, is loss for an equity instrument shall not be effective throughout the period for which sold, terminated or exercised, or the hedge reversed through profit or loss. it was designated. Hedges are regarded as no longer meets the criteria for hedge Derivative financial highly effective in offsetting changes in accounting, the cumulative change in fair fair value or the cash flows attributable to instruments and value remains in equity until the hedged a hedged risk within a range of 80–125 cash flows affect profit or loss. hedge accounting per cent. Sale and repurchase Derivative financial instruments are clas- In the Banking and Investment Serv- sified as those held for trading and those ices segment, assets, liabilities and future agreements and held for hedging, including interest rate cash flows denominated in euro or other securities lending currencies are hedged against related derivatives, foreign exchange derivatives, Securities sold subject to irrevocable interest rate, currency and price risks. Both equity derivatives and commodity deriva- repurchase agreements (‘repos’) are individual items and portfolios are des- tives. Derivative instruments are measured retained in the balance sheet as financial ignated as hedged items to which hedge initially at fair value. All derivatives are assets. The sale is recognised as a liability accounting is applied. In the Insurance carried as assets when fair value is posi- and included in ‘Amounts owed to credit segments, hedges are made against inter- tive and as liabilities when fair value is institutions and customers’ in the balance est rate risk and currency risk, but hedge negative. sheet. Securities purchased under irrevo- accounting is not applied. cable agreements to resell (‘reverse repos’)

26 Sampo Group I Board of Directors’ Report and Financial Statements are recorded as loans to credit institutions Group as lessee is probable that the expected future eco- or customers and included in ‘Loans and Finance leases nomic benefits that are attributable to receivables’ in the balance sheet. The dif- Leases of assets in which substantially all the assets will flow to the Group and the ference between the sales and repurchase the risks and rewards of ownership are cost of the assets can be measured reliably. prices is treated as interest and accrued transferred to the Group are classified as Research costs are recognised as expenses over the life of the agreements using the finance leases. Finance leases are recog- in profit or loss as they are incurred. Costs effective interest rate method. nised at the lease’s inception at the lower arising from development of new IT Securities lent to counterparties are of the fair value of the leased asset and the software or from significant improvement retained in the balance sheet. Conversely, present value of the minimum lease pay- in existing software are recognised only securities borrowed are not recognised in ments. The corresponding obligation is to the extent they meet the above-men- the balance sheet, unless these are sold to included in ‘Other liabilities’ in the balance tioned requirements for being recognised third parties, in which case the purchase is sheet. The assets acquired under finance as assets in the balance sheet. recorded as a trading asset and the obliga- leases are amortised or depreciated over Intangible assets are measured at his- tion to return the securities as a trading the shorter of the asset’s useful life and the torical cost less accumulated amortisation liability at fair value through profit or loss. lease term. Each lease payment is allo- and impairment losses. Intangible assets are amortised on a straight-line basis over Leases cated between the liability and the interest expense. The interest expense is amortised the estimated useful life of the asset. The Group as lessor over the lease period to produce a constant estimated useful lives by asset class are as Finance leases periodic rate of interest on the remaining follows: balance of the liability for each period. Leases in which assets are leased out and IT software 4–10 years substantially all the risks and rewards of Other leases Other intangible assets 3–10 years ownership are transferred to the lessee are Assets in which the lessor retains substan- classified as finance leases. Finance leases In Sampo Group there are no intangible tially all the risks and rewards of owner- are recognised as receivables in the bal- assets with an indefinite useful life. ance sheet at an amount equal to the net ship are classified as operating leases and investment in the lease. The lease payment they are included in the lessor’s balance Property, plant is allocated between the repayment of sheet. Payments made on operating leases and equipment principal and interest income. The interest are recognised on a straight-line basis over Property, plant and equipment comprise income is amortised over the lease period the lease term as rental expenses in profit properties occupied for Sampo’s own so as to achieve a constant periodic rate of or loss. activities, office equipment, fixtures and return on the remaining net investment Intangible assets fittings, and furniture. Classification of for the lease term. properties as those occupied for own Finance leases are included in ‘Loans Goodwill activities and those for investment activi- and receivables’ and interest in ‘Interest Goodwill represents the excess of the cost ties is based on the square metres in use. income’. of an acquisition (made after 1 January If the proportion of a property in Sampo’s Other leases 2004) over the fair value of the Group’s use is no more than 10 per cent, the prop- share of the net identifiable assets, lia- erty is classified as an investment property. Leases in which assets are leased out and bilities and contingent liabilities of the Property, plant and equipment are the Group retains substantially all the acquired entity at the date of acquisition. measured at historical cost less accumu- risks and rewards of ownership are classi- Goodwill on acquisitions before 1 January lated depreciation and impairment losses. fied as operating leases. They are included 2004 is accounted for in accordance with Improvement costs are added to the carry- in ‘Property, plant and equipment’ in the previous accounting standards and the ing amount of a property when it is prob- the balance sheet. They are depreciated carrying amount is used as the deemed able that the future economic benefits that over their expected useful lives on a basis cost. The classification and accounting are attributable to the asset will flow to the consistent with similar owned property, treatment of these acquisitions have not entity. Costs for repairs and maintenance plant and equipment, and the impairment been adjusted in preparing the Group are recognised as expenses in the period in losses are recognised on the same basis as IFRS opening balance sheet. which they were incurred. for these items. Rental income on assets Goodwill is measured at historical Items of property, plant and equip- held as operating leases is recognised on cost less accumulated impairment losses. ment are depreciated on a straight-line a straight-line basis over the lease term in Goodwill is not depreciated. basis over their estimated useful life. Land profit or loss. Other intangible assets is not depreciated. Estimates of useful life are reviewed at financial year-ends and IT software and other intangible assets the useful life is adjusted if the estimates are recognised in the balance sheet, if it

Sampo Group I Board of Directors’ Report and Financial Statements 27 IfRS FINANCIAL STATEMENTS: Notes to the Accounts

change significantly. The estimated useful Investment property national accounting standards, except for equalisation reserve and changes in it lives by asset class are as follows: Investment property is held to earn rentals which are reported in equity and profit and for capital appreciation. The Group or loss. As it is not possible under IFRS 4 Residential, business applies the cost model to investment to recognise the equalisation reserve as a premises and offices 20–60 years property in the same way as it applies to liability, they have been transferred from Industrial buildings property, plant and equipment. Moreover, insurance liabilities to equity in the open- and warehouses 30–60 years the depreciation periods and methods and ing balance sheet. Components of the impairment principles are the same as buildings 10–15 years those applied to corresponding property P&C Insurance business IT equipment and occupied for own activities. The fair value Classification of insurance contracts motor vehicles 3–5 years of investment property is estimated using Other equipment 3–10 years the method based on estimates of future In classifying insurance contracts and cash flows and the comparison method examining their related risks, embedded Impairment of intangible contracts are interpreted as one contract. assets and property, plant based on information from actual sales in the market. The fair value of investment Other than insurance contracts, i.e. and equipment property is disclosed in Note 19. contracts where the risk is not transferred, include Captive contracts in which an At each reporting date the Group assesses The valuation takes into account the insurance company underwrites a compa- whether there is any indication that an characteristics of the property with respect ny’s direct business and reinsures the same intangible asset or an item of property, to location, condition, lease situation and risk in an insurance company in the same plant or equipment may be impaired. If comparable market information regarding group as the policyholder. There are also any such indication exists, the Group will rents, yield requirements and unit prices. contracts in P&C insurance (Reverse Flow estimate the recoverable amount of the The valuations are conducted by the Fronting contracts) in which the insurance asset. In addition, goodwill and intangi- Group’s internal resources. company grants insurance and then trans- ble assets not yet available for use will be Provisions fers the insurance risk to the final insurer. tested for impairment annually, independ- For both the above types of contract, only ent of any indication of impairment. For A provision is recognised when the Group the net effect of the contract relationship impairment testing the goodwill is allo- has a present legal or constructive obli- is recognised in the income statement and cated to the cash-generating units of the gation as a result of a past event, and it balance sheet (instead of the gross treat- Group from the date of acquisition. In is probable that an outflow of resources ment, as previously). The prerequisite for the test the carrying amount of the cash- embodying economic benefits will be net treatment is that the net retention generating unit, including the goodwill, is required to settle the obligation and the recognised on the contract is zero. compared with its recoverable amount. Group can reliably estimate the amount of There are also contracts in P&C The recoverable amount is the higher the obligation. If it is expected that some insurance in which the insurance risk is of an asset’s net selling price and its value or all of the expenditure required to settle eliminated by a retrospective insurance in use. The value in use is determined as the provision will be reimbursed by anoth- premium, i.e. the difference between fore- the present value of the future cash flows er party, the reimbursement will be treated cast and actual losses is evened out by an expected to be derived from an asset as a separate asset only when it is virtually additional premium directly or in connec- in a cash-generating unit. If the carry- certain that the Group will receive it. tion with the annual renewal of the insur- ing amount of an asset is higher than its Obligations arising from defined ance. The net cash flow from these con- recoverable amount, an impairment loss is benefit plans are presented as provisions in tracts is recognised directly in the balance recognised in profit or loss. Other liabilities in the balance sheet. sheet, without recognising it first in the If there is any indication that an income statement as premiums written impairment loss recognised for an asset in Insurance and and claims incurred. prior periods may no longer exist or may investment contracts have decreased, the recoverable amount of Insurance contracts are dealt with in Insurance liabilities the asset will be estimated. If the recov- accordance with IFRS 4. Under the stand- erable amount of the asset exceeds the Insurance liabilities are the net contrac- ard, insurance contracts are classified as carrying amount, the impairment loss is tual obligations which the insurer has on insurance contracts and other contracts reversed, but no more than to the carrying the basis of insurance contracts. Insurance according to whether significant insurance amount which it would have been with- liabilities, consisting of the provisions for risk is transferred between the policy- out recognition of the impairment loss. unearned premiums and unexpired risks holder and the insurer. The liabilities aris- Impairment losses recognised for goodwill and for claims outstanding, correspond to ing from contracts are treated in the first are not reversed. the obligations under insurance contracts. phase of the standard according to nation- The provision for unearned premiums al accounting standards. Sampo Group’s is intended to cover anticipated claims insurance companies continue to apply

28 Sampo Group I Board of Directors’ Report and Financial Statements costs and operating expenses during the In the test for the unit-linked business, sponds in amount to the paid out pension remaining term of insurance contracts in the present values of the insurance risk index raise, the said items are set-off in the force. In P&C insurance and reinsurance, and expense results are calculated cor- Income Statement item, Other expenses the provision for unearned premiums is respondingly. If the aggregate amount of from operations. normally calculated on a strictly propor- the liability for the unit-linked and other Deferred acquisition costs tional basis over time, i.e. on a pro rata business presumes an augmentation, the temporis basis. In the event that premiums liability is increased by the amount shown In the P&C insurance business, acquisi- are judged to be insufficient to cover antic- by the test and recognised in profit or loss. tion costs clearly relating to the writing of ipated claims costs and operating expens- insurance contracts and extending beyond Provision for a collective guarantee es, the provision for unearned premiums the financial year are recognised as assets must be augmented by a provision for The provision for a collective guarantee is in the balance sheet. Acquisition costs unexpired risks. Calculation of the provi- regulated by Finland’s Traffic and Acci- include operating expenses directly or sion for unexpired risks must also take into dent Insurance Act and must be collected indirectly attributable to writing insurance account instalment premiums not yet due. by insurance vendors. Its purpose is to contracts, fees and commissions, market- The provision for claims outstanding guarantee the payment of claims to cus- ing expenses and the salaries and over- is intended to cover the anticipated future tomers in the event that any insurance heads of sales staff. payments of all claims incurred, including vendors are put into liquidation or bank- The acquisition costs are usually claims not yet reported to the company; ruptcy. The collection of funds for this amortised in 12 months at the maximum. i.e. the IBNR (incurred but not reported) provision is to guarantee the payment of Life insurance business provision. The provision for claims out- obligations that may arise in the future. standing includes claims payments plus all In Sampo Group the provision for a col- Classification of insurance contracts costs of claim settlements. lective guarantee is recognised in equity, Policies issued by the Life Insurance busi- The provision for claims outstanding in accordance with the Framework of the ness are classified as either insurance con- in direct P&C insurance and reinsurance IFRS, until it become probable that the tracts or investment contracts. Insurance may be calculated by statistical methods or obligation will be settled. The provision contracts are those contracts where signif- through individual assessments of indi- for a collective guarantee is not an part of icant insurance risks are carried or may be vidual claims. Often a combination of the distributable equity. carried if the policyholders use their rights two methods is used, meaning large claims to change the contract by increasing the are assessed individually while small Pay-as-you-go system for insurance risk. Only capital redemption operations claims and claims incurred but not report- Pensions paid on the basis of Finland’s do not involve insurance risk, but they ed (the IBNR provision) are calculated statutory P&C insurance (accident, motor involve financial risk. They are classified as using statistical methods. The provision third party liability and patient insurance) investment contracts. for claims outstanding is not discounted, are raised annually by the TEL (Employee The discretionary participation feature with the exception of provisions for vested Pensions Act) index in order to maintain (DPF) of a contract is a contractual right annuities, which are discounted to present the real value of the pensions. The index held by a policyholder to receive addition- value using standard actuarial methods, raises are not the responsibility of the al benefits, as a supplement to the guar- taking anticipated inflation and mortality insurance companies, but are funded by anteed minimum benefits. The supple- into account. the so-called pay-as-you-go principle, i.e. ments are bonuses based on the reserves Premiums written for P&C insur- each year premiums written include index of policies credited to the policy reserve ance and reinsurance are recognised in the raises to the same amount that is paid out or additional benefits in the case of death. income statement when the annual insur- in that year. In practice, the P&C insur- In Sampo Life, the principle of fairness ance premium is due for payment. ance companies collect a so-called expense specifies the application of the feature. Liability adequacy test loading along with their premiums writ- In unit-linked contracts the policyholder ten, which is then used immediately to pay carries the investment risk by choosing the The liability adequacy test is applied by claims and benefits in accordance with the investment funds linked to the contracts. each company to all portfolios. The test pay-as-you-go system. for non-linked liabilities includes all the The pay-as-you-go system related to Measurement of insurance expected contractual cash flows. The pension index raises is not treated as an and investment contracts claims have been estimated including sur- insurance activity under IFRS 4 and does National accounting standards are applied renders and other insurance transactions not lead to any risk for the insurance com- to all insurance contracts and to invest- based on historical data. The amounts of pany. Thus, the pay-as-you-go contribu- ment contracts with DPF, with the excep- claims include the guaranteed interest tion collected together with the insurance tion of the equalisation provision and and an estimation of future bonuses. The premium is not deemed to be premium changes in it. present values of the cash flows have been income, and the pension index raise paid All contracts, except unit-linked discounted to the balance sheet date by out is not deemed to be claims incurred. contracts and the assumed reinsurance, using a risk-free zero-coupon yield curve. Because the collected index raise corre-

Sampo Group I Board of Directors’ Report and Financial Statements 29 IfRS FINANCIAL STATEMENTS: Notes to the Accounts

include DPF. In those unit-linked con- 1999:65 of the Ministry of Social Affairs liability for the unit-linked and other tracts which are not insurance contracts, and Health. The guaranteed interest rate business presumes an augmentation, the the policyholder has the possibility to used in the direct insurance premium basis liability is increased by the amount shown transfer the return on savings from unit- varies on the basis of the starting date of by the test and recognised in profit or loss. linked schemes to guaranteed interest the insurance from 0 to 4.5 per cent. Principle of fairness with DPF. Thus these contracts are also Due to the difference in the discount measured as contracts with DPF. rate of liabilities and the guaranteed inter- According to Chapter 13, Section 3 of the The surrender right, guaranteed interest of policies, supplementary provisions Finnish Insurance Companies’ Act, the est and the unbundling of the insurance for guaranteed interest have been added to Principle of Fairness must be observed in component from the deposit component technical provisions. life insurance and investment contracts and similar features are not separated and In the Baltic subsidiaries, the discount with a discretionary participation feature. measured separately. interest rate varies by country between If the solvency requirements do not pre- 2.2–3.5 per cent and the average guaran- vent it, a reasonable part of the surplus has Insurance and investment contract teed interest rate between 3.5–3.9 per cent. liabilities and reinsurance assets to be returned to these policies as bonuses. For unit-linked contracts, all the Sampo Life aims at giving a total Liabilities arising from insurance and liabilities and the assets covering the unit- return before charges and taxes on poli- investment contracts consist of provisions linked insurance are matched. Both the cyholders’ savings in contracts with DPF for unearned premiums and outstand- liabilities and the assets have been present- that is at least the yield of a Finnish gov- ing claims. In the life insurance business, ed in the Notes to the financial statements. ernment long-term bond. The total return various methods are applied in calculat- In calculating the provision for claims consists of the guaranteed interest rate ing liabilities which involve assumptions outstanding of direct insurance, discount- and bonuses determined annually. As on matters such as mortality, morbid- ing is applied only in connection with the for the level of the total return, continuity, the yield level of investments, future liabilities of pensions whose payment has ity is pursued. The aim is to maintain the operating expenses and the settlement commenced. The liabilities of assumed company’s solvency status on such a level of claims. Changes in the liabilities of reinsurance are based on the reports of the that it does not limit the giving of bonuses reinsurance have been calculated at fixed ceding company and on an estimate of to policyholders, nor the distribution of rates of exchange. Therefore, the impact claims which have not yet been settled. profit to shareholders. of the exchange rates on the results in the The provision for claims outstanding The legislation of Estonia, Latvia and underwriting business has been included is intended to cover expected future pay- Lithuania respectively does not contain in ‘ Net income from investments’ in the ments for all claims incurred, including provisions corresponding to the Principle Income statement . claims not yet reported to the company of Fairness. In direct insurance, the insurance (the “IBNR” provision). The provision for liability is calculated by policy, while in claims outstanding includes claim pay- Employee benefits reinsurance it is calculated on the basis ments plus all costs of claim settlements. Post-employment benefits of reports of the ceding company or the Liability adequacy test company’s own bases of calculation. Post-employment benefits include pen- The interest rate used in discounting A liability adequacy test is applied by sions and life insurance. liabilities is, at most, the maximum rate company to all portfolios. The test Sampo has arranged defined benefit accepted by the authorities in each coun- includes all the expected contractual cash plans in Sweden and Norway, and defined try. The interest rate used in discounting flows for not-unit-linked liabilities. The contribution plans in other countries. The liabilities is the same or lower than that expected contractual cash flows include most significant defined contribution plan used in premium calculation. Most of the expected premiums, claims, bonuses and is that arranged through the Employees’ liabilities of the accrued benefits of pen- expenses. The claims have been estimated Pensions Act (TEL) in Finland. sion business with DPF is discounted by including surrenders and other insurance In defined contribution plans, the an interest rate of 3.5 per cent, and most transactions based on historical data. The Group pays fixed contributions to a pen- of the life business with DPF by 2.5 per amounts of claims include the guaran- sion insurance company and has no legal cent. The highest discount rate used for teed interest and an estimation of future or constructive obligation to pay further accrued benefits is 3.5 per cent. bonuses. The present values of the cash contributions. The obligations arising The guaranteed interest rate used in the flows have been discounted to the balance from a defined contribution plan are rec- calculation of the domestic life insurance sheet date by using a risk-free zero-cou- ognised as an expense in the period that liabilities is in compliance with the calcula- pon yield curve. the obligation relates to. tion basis approved by the company’s Board For the unit-linked business, the In defined benefit plans, the company of Directors and meet both the decrees present values of the insurance risk and still has obligations after paying the contri- (248/1999 and 56/2003) of the Council of expense results are calculated correspond- butions for the financial period and bears State and the requirements of regulation ingly. If the aggregate amount of the their actuarial and/or investment risk. The

30 Sampo Group I Board of Directors’ Report and Financial Statements obligation is calculated separately for each schemes (2003 I, 2004 I and 2004 II, 2005 A deferred tax asset is recognised to the plan using the projected unit credit meth- I and II) for Group executives and experts. extent that it is probable that future taxable od. In calculating the amount of the obli- bonuses are paid when a defined return income will be available against which a gation, actuarial assumptions are used. The on equity is achieved. The total amount temporary difference can be utilised. pension costs are recognised as an expense of the bonus is based on the fulfilment of for the service period of employees. return criteria and on the imputed bonus Share capital Defined benefit plans are both funded units granted, the value of which is cal- The incremental costs directly attributable and unfunded. The amounts reported as culated on the basis of the Sampo share to the issue of new shares or options or to pension costs during a financial year con- price and the starting price of a share the acquisition of a business, are included sist of 1) the actuarially calculated earn- defined in the incentive scheme. The value in equity as a deduction, net of tax, from ings of old-age pensions during the year, of the incentive recognised in the profit or the proceeds. calculated straight-line, based on pension- loss and balance sheet of a reporting date Dividends are recognised in equity in able income at the time of retirement, is the amount that would be paid, if the the period when they are approved by the and 2) calculated effects in the form of programme matured for payment at the Annual General Meeting. interest expense for crediting/appreciat- reporting date. When the parent company or other ing the preceding years’ established pen- Termination benefits Group companies purchase the parent sion obligations less 3) revenues from the company’s equity shares, the consideration assets covered by the plan. The calculation An obligation based on termination of paid is deducted from the share capital as of pension costs during the financial year employment is recognised as a liability treasury shares until they are cancelled. If starts at the beginning of the year and when the Group is verifiably committed to such shares are subsequently sold or reis- is based on assumptions about such fac- terminate the employment of one or more sued, any consideration received is includ- tors as salary growth and price inflation persons before the normal retirement date ed in equity. throughout the duration of the obligation or to grant benefits payable upon termina- and on the anticipated/expected return on tion as a result of an offer to promote vol- Fiduciary activities the plan’s assets and the market interest untary redundancy. As no economic bene- The fiduciary services supplied by the rate on the obligation during the financial fit is expected to flow to the employer from Group are discretionary asset manage- year. these benefits in the future, they are recog- ment services, mutual fund services and When reporting defined benefit plans nised immediately as an expense. Obliga- securities custody services. In these activi- in the balance sheet, the so-called corridor tions maturing more than 12 months later ties, assets are held and placed on behalf method is used. According to this model, than the balance sheet date are discounted. of customers. These assets and the income accrued actuarial gains and losses result- The benefits payable upon termination arising thereon are excluded from these ing from differences between calculated at Sampo are the monetary and pension financial statements, as they are not assets assumptions and the actual outcome are packages related to redundancy. of the Group. not reported in the income statement unless the accumulated difference exceeds Income taxes Cash and cash equivalents 10 per cent of the present value of the Item Tax expenses in income statement Cash an cash equivalents comprise cash future obligations or the fair value of plan’s comprise current and deferred tax. Cur- and balances with central banks including assets, whichever is higher. Accumulated rent tax is calculated based on the valid tax shor-term deposits (3 month) as well as differences that exceed the 10 per cent rate of each country. Tax is adjusted by any loans and advances to banks repayable on limit are accrued in the income statement tax related to previous periods. demand. as pension costs throughout the dura- Deferred tax is calculated on all tem- Sampo presents cash flows from oper- tion of the obligation. The accumulated porary differences between the carrying ating activities using the indirect method accrued actuarial gains and losses calcu- amount of an asset or liability in the bal- in which the profit (loss) before taxation is lated in this way that are not reported in ance sheet and its tax base. The largest adjusted for the effects of transactions of the income statement are reported in the temporary differences arise from meas- a non-cash nature, deferrals and accruals, balance sheet as a net asset/net liability. urement at fair value. Deferred tax is not and income and expense associated with The Group also has certain voluntary recognised on non-deductible goodwill investing or financing cash flows. defined benefit plans. These are intra- impairment, and nor is it recognised on In the cash flow statement, interest Group, included in the insurance liabilities the undistributed profits of subsidiaries to received and paid are presented in cash of Henki-Sampo and have no material the extent that it is probable that the tem- flows from operating activities. In addi- significance. porary difference will not reverse in the tion, the dividends received are included foreseeable future. Other long-term employee benefits in cash flows from operating activities. Deferred tax is calculated by using the Dividends paid are presented in cash flows In Sampo, other long-term employee enacted tax rates prior to the balance sheet from financing. benefits include long-term incentive date.

Sampo Group I Board of Directors’ Report and Financial Statements 31 Sampo Risk Management Disclosures 2005

32 Risk management overview ( Figure 1) 32 Business model and risks 33 Capital management Sampo's 33 Regulatory capital Board of Directors 34 Economic capital Risk Control Financial Control 34 Capitalisation and capital Committee management process 34 Financial risks 34 Market risks Investment ALCO Credit Committee Committees 38 Credit risks 40 Liquidity risks 41 Property risks 41 Insurance risks 41 P&C insurance risks made within the framework of the given impairment losses and cost efficiency. 42 Life insurance risks 44 Risk management process and methods authorities in the Investment Commit- The margin between loans and deposits 44 Risk management governance tee, the Credit Committee and the Asset in banking, with a moderate interest rate 44 Market risks management and Liability Committee (ALCO). For and liquidity risk profile, changes slowly. 46 Credit risks management more details see also “Market risk man- Possible sources of result fluctuations are 47 Investment management of agement” on page 44. The Group’s overall shocks in the credit and operational risk insurance companies risk exposures are reported to the board areas. In banking and investment services, 47 P&C insurance on a monthly basis. The risk management the fees gathered from customer business 48 Life insurance risk management organisation is presented in figure (1). are also an important source of earnings. 48 Operational risk management Because fees are exposed to changes in 49 Preparation for changes in Business model and risks business volume, profitability is mostly the operating environmet Sampo Group is divided into business exposed to changes in general economic areas (segments), which are banking and activity and customer behaviour. The core of the P&C insurance busi- Risk management overview investment services, property & casualty insurance (P&C insurance) and life insur- ness is transfer of risk from the insured Risk is an essential part of Sampo’s oper- ance (Figure 2). The parent company, Sam- clients to the insurer. P&C Insurance ating environment and business activities. po plc, acts as the holding company and collects insurance premiums from a large Clearly defined strategies and responsi- has no active operational business role. group of policyholders and commits to bilities, together with strong commitment The major risks associated with Sam- compensate them if an insured event to the risk management process, are our po Group’s activities are insurance risk, occurs. For P&C Insurance the result tools to manage risks. the credit risk arising from banking and depends on both the underwriting result The main objectives of the risk man- investments, the market risks of invest- and on the return on investment assets. agement process are to ensure that risks ment portfolios, interest rate and liquidity It is of utmost importance for the under- are properly identified, risk measurement risk of the banking book. Operational and writing result that insurance policies are is independent and the capital base is business risks are inherent in all business prudently priced. However, there is a risk adequate in relation to the risks. The risks areas. of adverse outcomes due to the inherent related to the Group’s activities and the The banking result mainly depends on uncertainty associated with the insurance sufficiency of the companies’ capitalisa- loan and deposit margins, business vol- business. This uncertainty is managed tion in relation to these risks are regularly umes, the size and structure of the balance by reinsurance, for example. Investment evaluated. These evaluations are made sheet, the general level of interest rates, operations emphasise absolute return and at both the individual company and the Group level. (Figure 2) The Board of Directors of Sampo plc is responsible for ensuring that the Sampo Group’s risks are properly managed and Group controlled. The Board sets the principles of risk management and provides guid- Banking and Holding P&C Life Investment and Other ance on the organisation of risk manage- Insurance Insurance ment and internal control in the business Services Companies areas. The Board monitors the risk management process and has established a risk control committee to control the Group’s risks. The major risk-related decisions are

32 Sampo Group I Board of Directors’ Report and Financial Statements ( Table 1) (Figure 3) Sampo Group solvency D dec. 31 dec. 31 Economic capital 2004–2005, EURm EURm 2005 2004 Group capital 4,348.1 3,439.8 4,000 Sectoral items included in own funds 2,733.1 1,987.8 3,000 Goodwill and other deductions from own funds –2,254.5 –1,291.0

Own funds, brutto 4,826.7 4,136.6 2,000 Non-transferable items –493.8 –500.0 Group’s own funds, total 4,332.9 3,636.6 1,000 Minimum requirements for own funds, total 2,209.3 2,132.2 0 Group solvency 2,123.6 1,504.4 1 2 3 4 5 Group solvency ratio, % 196.1 170.6 2004 2005 1 Banking & Investment Services (Own funds % of minimum requirement) 2 Life Insurance 3 P&C Insurance 4 Holding Company 5 Sampo Group (incl. diversification effect) risk control. As a major part of the insur- the profitability of its subsidiaries, interest ance premium must be paid to policy- rates and foreign currency. The subsidiar- (Figure 4) holders through future claims, there has ies’ business risks are managed by con- Economic capital, minimum capital requirement to be assurance that sufficient assets are stantly developing the business areas to and NAV 2004–2005, EURm always available to cover these liabilities. keep them competitive and profitable. 5,000 The duration gap between liabilities and 4,000 fixed investments is under constant moni- Capital management toring and management. Surplus capital Regulatory capital 3,000 is invested in a diversified portfolio to 2,000 enhance the total return. Banking and insurance are regulated busi- 1,000 The life insurance business is based on nesses. There are formal rules for minimum capital and capital structure. Capital bearing and managing risks resulting from 0 2004 2005 the randomness of the occurrence and adequacy and solvency are reported quarterly to the supervisory authorities moni- Regulatory minimum capital size of casualty events and the financial Economic capital risks included in assets and liabilities. The toring Sampo group and its subsidiaries. NAV major part of Sampo Life group’s business The supervisors are the Financial Supervi- risks and result comes from investment sion Authority and Insurance Supervision assets. Return on assets should cover, in Authority In Finland, Finansinspektionen the long run, at least the guaranteed inter- (SFSA) in Sweden and local supervisors in the Baltic countries. The Financial est, bonuses based on the principle of fair- (Figure 5) ness and the cost of shareholder capital. Supervision Authority acts as the co-ordi- Other elements of profit are the results of nator. Subsidiaries are monitored on a solo Group economic capital by risk type, Dec. 31, 2005 the insurance risk and expense risk. The basis by the authority of the country of their location. insurance risk result is the assumed claims Business risk 10% The capital adequacy and solvency in premium calculations minus the actual Operational risk claims. It is managed through careful risk margin figures are presented in Sampo 8% Group’s Key Figures. Since the beginning Market risk selection and diversification, for example. 38% of 2005, Sampo Group has reported the Insurance risk The expense result is the expense charges 20% from policies minus the actual expenses. Group’s capital adequacy in accordance It is managed by continuously monitoring with the Financial Conglomerates Direc- (1) Credit risk 24% expenses, by improving efficiency and by tive (2002/87/EC). See table . using an expense charge structure that also All Sampo Group companies fulfilled covers expenses after policy inception. the regulatory minimum capital require- Sampo plc’s main holdings comprise ments during 2005. the shares of subsidiaries, which are partly financed by debt instruments. Some holdings are in foreign currencies. Sampo Plc’s earnings are therefore exposed to

Sampo Group I Board of Directors’ Report and Financial Statements 33 IfRS FINANCIAL STATEMENTS: Sampo Risk Management Disclosures 2005

Economic capital (Table 2) Sampo Group, Financial assets and liabilities, The risks in Sampo Group are described sensitivity to market change and aggregated internally through the risk concept of economic capital. Economic interest rate equity commodity 1 % Parallel % Parallel 0% Fall 0% Fall capital describes the amount of capital EURm shift Down shift Up in Prices in Prices required in the Group in order to bear Assets different kinds of risks. Cash Economic capital is defined by mar- Bonds 395 –364 ket, credit and insurance risks, operational Money market 11 –11 risks and business risks. The economic Equity and funds –2 2 –304 –1 capital allocated to the market, credit and Loans and receivables 127 –127 technical risks of insurance is calculated by Credit cards 1 –1 means of the Group’s own statistical risk Financial lease assets 6 –6 models. The capital requirement for oper- Other financial assets ational risks is calculated using the Basel II Standard Approach. Business risks are Liabilities measured by business area in terms of the Deposits –110 110 volatility of the operating profit and level Term deposits –8 8 of costs. Money market –12 12 Economic capital reflects not only the Loans –4 4 amount of the different kinds of risks, but Senior bonds –51 51 also slightly their mutual diversification Subordinated bonds –45 43 effect. It is very improbable that all risks in Other financial liabilities the Group’s business areas will materialise at the same time. The magnitude of the Derivatives diversification effect at the group level is Net amount 55 –48 –1 –21 about 14 per cent. Net 364 –327 –305 –21 Capitalisation and capital management process operations increased by about EUR 76 Market risks The basis for the Group’s capitalisation is million. The capital allocated to life insur- Movements in risk factors such as interest the need of economic capital. Other fac- ance operations increased by about EUR rates, exchange rates, equity and commod- tors affecting the need for capital are the 100 million. The capital allocated to P&C ity prices and changes in their respective expected business growth, changes in the insurance operations decreased EUR 49 volatilities affect the fair values of financial environment, the rating target together million. The capital allocated to the parent assets and liabilities. The sensitivity of with the regulatory minimum capital company mainly comprises the exchange existing contracts to different market risk requirements, and market expectations rate risks of subsidiary holdings. Analysed scenarios are shown in tables (2) and (4). concerning prudent capitalisation. When by risk category, the capital allocated to These tables do not show the financial the capital needs have been specified, the market risks and credit risks increased the risks of technical provisions, which are Group Treasury prepares capital transac- most. The capital allocated to insurance quantified on pages 36–37, in paragraphs tions for the approval of ALCO and the (3) (4) (5) risks decreased. See figures , and “Market risks of P&C insurance liabili- Companies’ Boards of Directors. The on page 33. ties” and “Market risks of life insurance Group Treasury executes transactions on liabilities”. the markets. Financial risks At group level the major interest The economic capital tied up in the Market, credit, liquidity and property risks rate risks are in the bond positions of the Group’s operations increased during are here classified under financial risks. insurance segment investment portfolio the year by about EUR 106 million (3 The breakdown of the group and its seg- and in the loan and deposit portfolios per cent). The reasons for this were the ments into financial assets and liabilities is of the banking segment. The equity risk growth of the banking loan portfolios, presented in table (3). The eliminations in applies almost exclusively to the insurance increase of the market value of the invest- the table are due to inter-segment transac- segment. Commodity risks are small com- ment portfolios and the sale of the Polish tions. Transactions between the Group’s pared to interest rate and equity risks. activities. At the same time the minimum companies are always priced in a market- The currency risk consists mainly capital adequacy requirements increased consistent manner. of the translation risk related to the net by about EUR 79 million (4 per cent). asset value and dividends of If. The cur- The capital allocated to credit institution

34 Sampo Group I Board of Directors’ Report and Financial Statements (Table 3) Sampo Group, Financial Assets and Liabilities by Segment, Dec. 31, 2005 segment P p&c life Holding elimi- Group EURm Banking insurance insurance and Other nations total Assets 22,250 9,915 5,539 231 –584 37,351 Cash 1,322 248 36 47 –47 1,606 Bonds 851 6,303 2,393 132 –133 9,546 Money market 1,259 2,323 1,152 –272 4,462 Equity and funds 16 1,026 1,933 51 3,027 Loans and receivables 17,597 –130 17,467 Credit cards 434 0 434 Financial lease assets 750 –1 749 Other financial assets 21 15 24 0 61

Liabilities 20,877 411 120 1,135 –321 22,222 Deposits 8,874 –89 8,785 Term deposits 1,508 –5 1,503 Money market 5,072 149 –120 5,101 Other long term debt (loans) 210 99 309 Senior bonds 4,291 290 –6 4,574 Subordinated bonds 508 411 597 –1 1,516 Capital notes 352 100 –100 352 Other financial liabilities 62 0 20 0 83

Derivatives (Assets–Liabilities) 42 –63 10 2 –8

(Table 4) rency positions of the Group’s companies Market risk sensitivities for financial assets and, against their home currency and the trans- liabilities by segment, Dec. 31, 2005 lation risks are shown in table (6) on page risk 36. The currency positions of companies interest rate equity commodity are kept very minor. The Group’s currency 1 % parallel % parallel 0% fall 0% fall EURm shift down shift up in prices in prices risk is EUR 154 million, measured against Banking and Investment Services –28 18 0 0 5 per cent depreciation of foreign curren- P&C Insurance, investment assets 194 –183 –101 0 cies against the EUR. Life insurance, investment assets 197 –162 –197 –22 The Value-at-Risk (VaR) figures for Holding and other 1 0 –6 0 the investment portfolios of insurance Sampo Group total 364 –327 –305 –21 companies and the trading services of banking are shown in table (5). To inter- pret the var figures, on a horizon of one (Table 5) month, Sampo Group has a 2.5 per cent VaR for investment and trading portfolios, Dec. 31, 2005 probability of losing more than EUR 95 VaR 97,5% 1 month million of its economic value due to mar- EURm dec.12, 2005 average maximum minimum ket risk in the P&C investment portfolio. P&C, investments –95 –117 –139 –92 See also ”Market risk management” on Life, investments –173 –166 –180 –145 page 44. Sampo Plc –62 –57 –64 –46

Market risks of banking VaR 99% 1 day horizon EURm dec.12, 2005 average maximum minimum The market risks of banking arise from Sampo Bank/Trading –0,39 –1,07 –2,05 –0,39 the banking book and trading services. The most noteworthy of the market risks is the interest rate risk of the banking book. The interest rate risk is managed in

Sampo Group I Board of Directors’ Report and Financial Statements 35 IfRS FINANCIAL STATEMENTS: Sampo Risk Management Disclosures 2005

(Figure 6) Sampo Bank’s banking book. Interest rate Market risks of investments Investment allocation, 15,950 EURm, Dec. 31, 2005 risk is not actively taken in the subsidiaries. If Group’s investment operations achieved In the banking book, loans to custom- a return of 5.8 per cent in 2005. The Real estate 1,5% Private equity 2,0% ers are mostly linked to Euribor rates. The amount of investment assets increased Commodities 0,3% Hedge funds 0,5% interest rates for a majority of demand by EUR 1,100 million. The duration of Money market deposits are set by the banks on the basis Equities 16,0% 28,9% investments was increased during the year of the competitive situation and general and credit investments were favoured. interest levels. The market-based fund- Sampo Life’s investment operations ing of Sampo Bank is mainly linked to the achieved a return of 12.0 per cent in 2005. Bonds 50,8% Euribor rates. In a low rate environment, The year was particularly good in terms of the net interest rate margin is under pres- equity investments. On the fixed income sure. When rates climb, the net interest side, there was an expectation of rising rate margin rises. The main risk is a situa- interest rates and therefore short-term tion in which the Euribor rates remain at a interest-bearing instruments were heavily very low level for a long period of time. favoured. During the year the real estate In 2005 the Euribor rates stayed at a and hedge fund allocation was diminished. low level, but hedging contracts improved Sampo Life was also a net seller of equity net interest income. These hedges have investments, but the equity allocation actu- (Figure 7) now mostly expired. During recent years, ally increased because of excellent per- the bank has not made any new long-term formance. See figures (6), (7), (8), (9) and (10). Fixed income investments, life insurance and P&C insurance, 12,744 EURm, Dec. 31, 2005 hedges of this kind, because there has been an expectation of rising rates. As per 31 Market risks of P&C insurance liabilities Global high yield 4% Other fixed income 2% December 2005, a hypothetical one per- US govt/credits 5% Insurance liabilities (technical provi- centage point interest rate rise would have Swedish index Money market sions) can be divided into provisions for linked bonds 6% 34% improved the net interest margin of Sam- unearned premiums and unexpired risks, po Bank by EUR 45 million. The com- and provisions for claims outstanding. As Scandinavian bined interest rate risk for other currencies govt/credits per 31 December 2005, net provisions 26 % was less than EUR 1 million. for unearned premiums and unexpired Euro govt/credits 23% Sampo Bank’s operations are mostly risks amounted to EUR 1,579 million, in euros. Although the Baltic subsidiaries while provisions for claims outstanding have operations in their home currencies, amounted to EUR 5,753 millions. Figure in fact their currencies already behave like (11) illustrates the distribution of reserves the euro. Later, when the Baltic countries per product. The majority of technical join the EMU, Sampo Bank Group’s bank- provisions are stated in the balance sheet ing book will become almost exclusively in nominal terms, and hence, from an euro-denominated. This has already been accounting perspective, are exposed only to taken into account in risk management. changes in future inflation. However, the Market risks in trading services are small economic value of these reserves, i.e. The compared to banking book risks. See also present value of future claims payments, is ”Market risk management” on page 44. exposed to changes in interest rates.

(Table 6) Currency risk by segment, Dec. 31, 2005 F foreign currency EURm Currency risk Home open position ccy EUr seK noK dKK eeK lVl ltl GBP USD JPY other Banking and Investment Services EUR –1 0 0 6 1 2 0 –4 0 2 P&C Insurance SEK –32 –29 –2 0 0 0 0 –35 41 –7 Life Insurance EUR 41 21 1 12 6 8 22 23 19 208 Holding and Other companies EUR 3 0 0 0 0 0 1 18 0 0 Group’s translation risk EUR 2,595 0 0 61 15 57 0 0 0 0 Sampo Group total EUR 2,638 –9 –1 80 21 66 22 1 59 203 5% depreciation of foreign currency against EUR –132 0 0 –4 –1 –3 –1 0 –3 –10

36 Sampo Group I Board of Directors’ Report and Financial Statements (Figure 8) (Figure 10) The duration of reserves depends on type (Figure 12) of insurance . The overall dura- Equity investments, life insurance and Sector allocation – total fixed income, tion of all technical provisions is about P&C insurance, 2,541 EURm, Dec. 31, 2005 11,237 EURm, Dec. 31, 2005 4.7 years. The length of the provisions for India 0,5% Latin America 1,3% motor claims in Finland and Sweden and Far East 8,0% for Worker’s Compensation in Finland is Japan 7,7% Finland 34,8% Governments due to the fact that claims are disbursed in North 39% Banks 40% the form of annuities. America 9,9% East Europe Reserves for annuities in Finland, 4,6% Sweden and Denmark are discounted, and Western potential changes in the discount rate will Europe 11,5% Scandinavia 21,6% Corporates 21% affect technical provisions. The discount rates vary between countries due to legislation. The total amount of discounted provisions is EUR 1,581 million. P&C insurance writes insurance policies mostly denominated in Scandinavian currencies and in Euro. See Figure (15) on page 42. In order to reduce the risk of hav- (Figure 9) (Figure 11) ing investments and technical provisions Rating – total fixed income, Distribution of technical provision per product, moving differently if there are movements 12,709 EURm, Dec. 31, 2005 EURm, Dec. 31, 2005 in currency rates, technical provisions are 2,000 matched with investments in the corre- No Rating 8% sponding currencies. BB–B 4% 1,600 BBB 5% 1,200 Market risks of life insurance liabilities AAA–A 83% 800 The duration gap between liabilities and fixed investments is under constant 400 monitoring and management. Most (77 0 per cent) of Sampo Life’s liabilities with 1 2 3 4 5 6 Finland Sweden a guaranteed return are formed from the Norway Denmark long-term pension business with a very 1 Motor 2 Workers’ Compensation low surrender risk. This fact, coupled with 3 Liability high solvency, makes it possible for the 4 Accident 5 Property investment strategy to look for an extra In finnish individual policies sold before 6 Cargo return, e.g. from the equity markets. 1999, the guaranteed interest rate is 4.5 per Sampo Life has prepared for low inter- cent, this being also the statutory maxi- (Figure 12) est rates by, for example, reducing the min- mum discount rate of these policies. With imum guaranteed interest of new contracts respect to these individual pension poli- Duration of claims provisions, years, Dec. 31, 2005 and increasing the reserve for a decreased cies, the discount rate used in discounting 15 discount rate. Due to these operations, liabilities has been decreased to 3.5 per the claim for future returns of the pension cent. The discount rate of life insurance 12 business has been decreased to 3.5 per cent and capital redemption policies having a 9 and, with respect to other business, to 2.5 guaranteed interest of 3.5 or 4.5 per cent per cent. In addition, existing contracts was decreased on 31 December 2005 to 6 and processes have been altered so that the 2.5 per cent. The liabilities have been 3 re-investment risk can be better managed. increased by EUR 149 million due to these 0 Sampo Life has no investment risk in the decreases, of which EUR 103 million is 1 2 3 4 5 6 unit-linked business. accounted for by individual pension poli- Finland Sweden Norway Denmark cies, and EUR 46 million by life insurance Interest rate risk 1 Motor and capital redemption policies. In addi- 2 Workers’ Compensation 3 Liability The most noteworthy risk included in tion, EUR 19 million has been reserved to 4 Accident liabilities is the interest rate risk related lower the rate of the return requirement 5 Property 6 Cargo to the guaranteed interest. In most with- for the individual and group pension busi- profit policies, the guaranteed interest rate ness during 2006 to 3.0 per cent. used in the premiums basis is 3.5 per cent.

Sampo Group I Board of Directors’ Report and Financial Statements 37 IfRS FINANCIAL STATEMENTS: Sampo Risk Management Disclosures 2005

The liabilities related to each guaran- and capital redemption policy operations. The figures in tables (7), (8), (9) and teed interest rate are shown in table (17) on This risk is reduced by the relatively short (10) show the exposures of customers of page 43. The table also shows the change maturity of such contracts , the surrender Sampo Group excluding baltic P&C in each category during 2005. Table (19) penalties of the first years and the reserve insurance. The internal receivables of on page 45 shows the maturity of each for a decreased discount rate. See also Sampo group companies have been elimi- category. table (19) on page 45. nated from these figures. Exposures are primarily categorised according to cus- Surrender risk Credit risks tomers or counterparties. However, in The surrender risk included in liabilities is Credit risks refer to variations in results cases where the credit decision was based the most noteworthy in with-profit insur- caused by customers or counterparties on the creditworthiness of a guarantor, ance. In pension insurance, surrender is failing to meet their commitments. Credit they are categorised according to the guar- possible only in exceptional cases, so that risks include counterparty, country and antor. Geographical reporting is based on the real surrender risk is in life insurance settlement risks. the country of registration of the customer or guarantor. The reporting of credit risks (Table 7) covers all agreements and derivative con- Maximum exposure by segment Banking and tracts, both on and off-balance sheet, with sampo investment p&c life which they are associated. EURm Group services insurance insurance other Sampo group’s outstanding exposures Bonds 9,547 793 6,316 2,431 7 to customers totalled EUR 40.0 billion - Public sector 5,202 650 2,933 1,613 7 and they increased during the year by - Finance and insurance 2,774 105 2,034 635 0 about EUR 5.9 billion. Corporate expo- - Corporate 1,234 36 1,027 171 0 sures increased by EUR 2.1 billion, of - Other 337 2 322 13 0 which banking accounted for EUR 1.4 Money market 4,620 1,351 2,120 1,149 0 billion and P&C insurance for EUR 0.7 Equity and funds 3,098 37 1,025 1,941 95 billion. Analysed by industry, the greatest Loans and receivables 18,877 18,813 0 63 0 relative increases were in forest industry - Public sector 157 157 0 0 0 (61 per cent), construction (35 per cent) - Finance and insurance 1,630 1,630 0 0 0 and the wholesale and retail distribution - Corporate 7,203 7,139 0 63 0 (31 per cent) . The greatest reductions in - Retail 9,709 9,709 0 0 0 exposures was in financial institutions - Other 178 178 0 0 0 (5 per cent). About 63 per cent of the Loan commitments 6,639 6,639 0 0 0 banking exposures to corporate customers Guarantees 1,902 1,856 46 0 0 are secured by category I–V collateral. Credit cards 425 425 0 0 0 Retail customer lending increased by Financial lease assets 811 811 0 0 0 2.3 billion (28.6 per cent) of which Bal- Derivatives 745 665 73 6 0 tic covers 0.3 billion (88%). 78 per cent Other financial assets 8 8 0 0 0 of the retail loan portfolio and most of Total 46,670 31,398 9,580 5,589 102 the new lending were used to finance the purchase of dwellings. The Baltic coun- (Table 8) Outstanding exposure by geography tries accounted for 6.5 per cent of the Banking and retail loan portfolio and 14 per cent of the sampo investment p&c life EURm Group services insurance insurance other growth. In Finland 81 per cent of lending Finland 24,653 20,851 1,020 2,709 74 and 85 per cent of its growth was in areas Sweden 6,176 479 5,233 464 0 of net in-migration of population. Just Other Scandinavia 1,244 161 838 246 0 under 2 per cent of lending was in areas Baltic countries 1,711 1,690 0 21 0 with significant net out-migration. About Other EU-countries 4,814 919 1,956 1,928 12 94 per cent of lending to retail customers US, CA, JP, AU, NZ, was secured by category I–IV collateral, Other Western Europe 1,067 377 525 149 16 which are mainly dwellings and govern- Asia (excl. Japan) 102 79 0 23 0 ment guarantees. 6 per cent of the total Middle East 78 74 0 4 0 was unsecured credits. Eastern Europe 59 58 0 1 0 In terms of geographical area, 95 per Other 126 72 9 45 1 cent of exposures were in EU countries. The growth of exposures were concentrat- Total 40,031 24,759 9,580 5,589 102 ed to Scandinavian and Baltic countries.

38 Sampo Group I Board of Directors’ Report and Financial Statements (Table 9) Measured by Sampo’s credit risk Outstanding exposure by sector model, the credit risk of corporate and Banking and institutional customers of banking sampo investment p&c life EURm Group services insurance insurance other increased during the year by 14 per cent. Corporates 12,344 9,374 1,491 1,426 53 The growth in economic capital was due - Forest industry 929 539 188 202 0 primarily to the growth in volume of - Metal industry 1,333 970 197 166 0 exposures. The average LGD-weighted - Other manufacturing 1,772 1,253 116 403 0 probability of default (PD) in corporate - Wholesale and retail distribution 1,529 1,469 49 10 0 exposures at the end of the year was 1.6 - Construction 688 471 23 194 0 per cent. Estimated loss given default was - Real estate 1,954 1,855 2 83 15 13 per cent of the volume of exposures. - Energy 650 543 69 39 0 The expected loss of corporate exposures - Information technology 655 312 218 125 0 remained at the 0.2 per cent level of the - Other companies 2 833 1,962 630 203 37 beginning of the year. Analysed by rating Financial institutions 9,558 3,571 3,617 2,337 33 categories, the relative share of exposures Public sector 6,930 1,422 3,833 1,658 17 belonging to at least the l2– (BBB–) cate- Other institutions 996 188 639 169 0 gory decreased from 80 per cent to 76 per Retail 10,204 10,204 0 0 0 cent. The total exposures included in the Total 40,031 24,759 9,580 5,589 102 two lowest categories (l4, l4–) decreased by EUR 39 million from the level of the Change from Dec. 2004 5,918 3,700 1,271 984 –36 beginning of the year. At the end of the year, these exposures totalled EUR 204 million and were secured by I–V category (Table 10) collateral amounting to EUR 149 million. Rating Analysis, maximum exposure Banking and % Exposures to customers in default sampo investment p&c life (Sampo stood as follows (EUR million): EURm Group services insurance insurance other Group level) L1+ (AAA) 5,691 1,317 3,172 1,203 0 12.2 L1 (AA+,AA) 3,108 2,564 358 180 7 6.7 EURm 2004 2005 L1– (AA–) 4,475 1,834 1,877 764 0 9.6 Corporate and L2+ (A+,A) 3,680 1,800 1,348 532 0 7.9 Institutional customers 69 70 L2 (A–,BBB+) 3,806 2,526 712 567 0 8,2 Retail customers 42 46 L2– (BBB,BBB–) 3,262 2,686 426 151 0 7.0 Total 111 116 L3+ (BB+) 2,032 1,754 242 36 0 4.4 L3 (BB) 2,249 2,187 51 11 0 4.8 L3– (BB–,B+ 1,879 1,832 11 36 0 4.0 The defaulted exposures totalling L4+ (B, B–) 768 712 55 0 1 1.6 EUR 116 million are secured with cat- L4 (CCC) 185 184 1 0 0 0.4 egory I–IV collateral totalling about EUR L4– (CC) 19 19 0 0 0 0.0 85 million. These figures are based on the Default 85 85 0 0 0 0.2 outstanding exposure. Unused limits of Unclassified 1,094 623 303 169 0 2.3 defaulted customers totalled EUR 15 mil- Retail 11,239 11,239 0 0 0 24.1 lion at the end of 2005. Total exposures to Subtotal 43,573 31,361 8,556 3,649 7 93.4 corporate and institutional customers in Equity 3 098 37 1,025 1,941 95 6.6 default increased by EUR 1 million and to retail customers by EUR 4 million. Total 46,670 31,398 9,580 5,589 102 100.0 Figure (13) on page 40 shows the past due carrying amounts for financial assets that are past due by their age. Nonper- New impairment losses totalled EUR 38 to reinsurers, partly through reinsurance forming loans were EUR 36 million and million, while recoveries totalled EUR receivables and partly through the reinsur- they decreased by EUR4 million. Non- 39 million. Net losses of retail customers ers’ portion of outstanding claims. The performing loans of retail customers were amounted to EUR 3 million and corpo- exposure is quite limited for premium EUR 24 million and 0,24% of the expo- rate customers’ recoveries exceeded losses receivables from policyholders, because sure. Corporate customers’ nonperforming by EUR 4 million. non-payment generally results in cancellation of the insurance policies. loans were EUR 12 million and 0,08% of Credit risks in P&C insurance liabilities the exposure. The distribution of reinsurance receiv- Impairment losses on loans and Exposure to credit risks in P&C insur- ables and reinsurers’ share of the claims receivables were EUR 1 million positive. ance is mainly associated with exposure provisions at December 31, 2005 per rat-

Sampo Group I Board of Directors’ Report and Financial Statements 39 IfRS FINANCIAL STATEMENTS: Sampo Risk Management Disclosures 2005

(Table 11) ing category is presented in table (11). In Liquidity risks of the banking book Reinsurance receivables the table reinsurance receivables and rein- and reinsurers’ portion of About half of Sampo Bank Group’s fund- surers’ portion of outstanding claims EUR outstanding claims per rating ing comes from liabilities to customers. 108 million are excluded. The excluded category This balance sheet item has been stable portion relates mainly to pool solutions in Finland and it is growing mainly in total in and captive companies. Rating eURm % the Baltic countries. In contrast, the loan In order to limit the credit risk associ- AAA 5 1.2 growth has been rapid in all areas. As a ated with reinsurance operations, P&C AA 56 13.9 result, Sampo Bank Group’s market-based Insurance complies with a reinsurance A 313 78.1 funding needs have been growing steadily. policy that stipulates the requirements for BBB 12 3.0 To maintain its current liquidity profile, reinsurers’ credit ratings and the maximum BB – CCC 1 0.2 Sampo Bank has been an active issuer of total exposure to individual reinsurers. The Not rated 14 3.5 medium term notes. To broaden its fund- distribution of ceded treaty and facultative Default 0.2 0.1 ing vehicles and to further ensure access to premiums in 2005 per rating category is funding sources, Sampo Bank Group built (12) Grand total 401 100.0 presented in table . up a covered bond programme and under it Sampo Housing Loan bank issued its (Table 12) debut covered bond (EUR 1 billion) in Ratings for 2005 ceded treaty which the Finnish residential mortgage and facultative premiums (Figure 13) pool was the collateral for issued bonds. S&P premiums % This programme will have a central role in Past due analysis on financial assets, days, EURm Rating in EURm of total AAA 1.2 1.5 funding in the coming years. 100 AA+ 0.1 0.1 Sampo Bank has also actively entered AA 11.0 13.8 into ISDA Master Agreements with 75 AA– 16.5 20.7 Credit Support Annexes to ensure there is also availability of OTC-market counter- 50 A+ 26.8 33.6 A 16.0 20.0 parties in times of market stress. To manage its short term liquidity, 25 A– 5.6 7.0 BBB+ 1.0 1.3 Sampo Bank Group has liquidity buffers 0 in the form of liquid money market secu- 1-6 7-30 31-89 90- BBB 0.9 1.1 Not rated 0.7 0.8 rities. There are also tested contingency plans in place to ensure that liquidity Total 79.7 100.0 management is managed in a co-ordinated manner, if there are severe liquidity problems in the markets. Liquidity risks Liquidity risks of insurance In the broadest sense, liquidity risks (Figure 14) concern the availability of funding and Liquidity risks are minor in P&C insur- reinsurance. If a liquidity risk materialises, ance, since premiums are collected in Distribution of technical provisions for claims it may jeopardise the conduct of regular advance and large claims payments are outstanding on period of payment business activities and, in extreme cases, usually known a long time before they fall may endanger the ability to fulfil daily due. The expected maturity for technical payment obligations. provisions is presented in figure (14). 11– years 25% Liquidity risks are managed on the As only a relatively small proportion –3 years 47% legal company level. Table (13) shows a of life insurance liabilities can be surren- contractual maturity analysis. In the table, dered, it is possible to forecast short-term financial assets and liabilities are divided claims expenditure reliably. Because of this 4–10 years 28% into contracts having an exact contractual and the liquidity of the assets, liquidity maturity profile and to other contracts. risks do not play a major role in Sampo’s Only the carrying amount is shown for life business. 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.

40 Sampo Group I Board of Directors’ Report and Financial Statements (Table 13) Financial Assets and Liabilities together with the insurance liability

C ash flows according to contractual maturity carrying Amount Total Cash flows EURm (expected future payments of technical provisions), C carrying no eliminations non Maturity amount with carrying carrying contractual 2011 – EURm A amount Total amount maturity 2006 2007 2008 2009 2010 2020 2021– Banking Financial Assets 23,380 1,677 21,703 6,327 2,185 2,131 1,497 1,625 6,225 1,853 Financial Liabilities 22,141 9,051 13,090 7,593 1,829 691 774 1,232 926 222 P&C Insurance Financial Assets 10,002 1,275 8,728 2,964 976 1,193 923 897 2,489 283 Financial Liabilities 560 0 561 22 22 22 22 22 402 0 Net technical provisions 7,332 7,332 0 2,590 901 499 387 314 1,761 2,471 Life Insurance Financial Assets 5,857 2,333 3,523 1,809 333 413 146 354 776 260 Financial Liabilities 156 56 100 6 6 6 6 6 112 0 Net technical provisions 4,738 4,738 0 469 484 464 384 350 2,403 1,884 Sampo Plc Financial Assets 233 98 134 11 9 9 22 8 145 0 Financial Liabilities 1,135 0 1,135 189 326 32 632 4 109 0

(Table 14) Liquidity profile of the banking book,D ec. 31, 2005

EURm 0–m –12m –2Y 2–5Y > 5Y total Assets 5,376 2,743 1,715 3,965 7,308 21,107 - Loans and advances to customers 1,260 2,029 1,660 3,859 7,014 15,821 - Liquid assets *) 3,275 670 41 84 1 4,071 - Derivatives 524 0 0 0 0 524 - Shares and participationst 0 0 0 0 202 202 - Tangible – and intangible assets 1 10 14 22 91 137 - Other assets 318 35 0 0 0 352

Liabilities 4,882 4,653 2,352 4,638 4,707 21,234 - Loans and advances to customers 2,520 1,360 1,027 3,230 2,620 10,756 - Liabilities to credit institutions and central banks 106 528 0 25 81 740 - Derivates 462 0 0 0 0 462 - Debt securities in issue 990 2,734 1,175 1,143 636 6,678 - Subordinated Liabilities 0 32 150 240 400 822 - Capital and reserves 0 0 0 0 971 971 - Other liabilities 804 0 0 0 0 804 Liquidity profile 494 –1,910 –637 –673 2,600 –126

*) Trading – items are in shortest maturity at market value. Demand deposits are reported over maturities.

Property risks Insurance risks ensure that the insurance premiums cover Sampo Group’s real estate investment P&C insurance risks the expected future claims. However, the risks are the responsibility of the real claims cost may deviate from the expected The main insurance risks in insurance estate management unit. The most note- level since risk is an inherent part of P&C operations are underwriting risks and worthy risks are changes in property val- insurance, e.g. due to single large claims or provision risks. Underwriting risks relate ues and changes in rental income. These natural catastrophes. to the pricing of undertaken insurance risks are limited by diversifying holdings P&C insurance follows detailed policies and to the inherent uncertainty both geographically and by type of prop- underwriting guidelines, intended to associated with such policies. Of utmost erty. In rental activities, the benefits of properly secure the assessment and quan- importance to profitability is an accurate diversification are pursued by selections tification of the risks P&C insurance will assessment of the probable magnitude related to the length of the tenancy rela- undertake, regulate the size of the sums and frequency of insurance claims, to tionship and the industry of the lessee. insured and define the risk types that

Sampo Group I Board of Directors’ Report and Financial Statements 41 IfRS FINANCIAL STATEMENTS: Sampo Risk Management Disclosures 2005

(Table 15) (Figure 15) Sensitivity test, underwriting risk Premium income per country, EURm EURm

Effect on pretax profit 1,500 1% change in Private’s combined ratio +/– 20 1,200 1% change in Commercial’s combined ratio +/– 12 1% change in Commercial’s combined ratio +/– 5 900

1% change in premium level +/– 37 600 1% change in claims frequency +/– 27 10% change in ceded reinsurance premium +/– 23 300 0 1 2 3 4 5 6 (Table 16) 1 Finland Sensitivy test, provision risk 2 Sweden 3 Norway 4 Denmark change in Effect 5 Baltics Risk P portfolios risk parameter Country eURm 6 Other Inflation in Nominal Increase by Sweden 157 nominal reserves long tailed 1%-point Denmark 8 Norway 36 Denmark 14 Discount rate Finalized Decrease by Sweden 42 annuities 1%-point Denmark 8 Finland 76 Mortality Finalized Life expectancy Sweden 7 annuities increased with 1 year Denmark 3 Finland 16

Life insurance risks should be accepted. A sensitivity analysis One concentration risk for P&C of the underwriting risk at December 31, Insurance is the exposure to natural disas- The liabilities of Sampo’s Life Insurance 2005 is presented in table (15). ters, such as winter storms and floods. business arise almost entirely (99 per cent) Provision risks relate to the adequacy The most exposed geographical areas to from Sampo Life’s Finnish operations. of technical provisions or reserves. The such disasters are Denmark, Norway and The insurance risks in Sampo’s baltic estimation of technical provisions for Sweden. The risk is measured by analysing and swedish life insurance companies are P&C insurance portfolios always includes historical events and studying the insur- managed using similar principles to those an element of uncertainty as the provi- ance values exposed, and is managed by applied in Sampo Life. sions represent an estimate of future purchasing reinsurance. Since 2003 a Nor- With respect to Sampo Life group, the claims payments. For the sensitivities of dic-wide reinsurance program has been insurance risks of insurance policies refer the reserves, see table (16). in use in If. On 2005 the retentions levels to risks related to the mortality rate and The storms of January 2005 mainly were sek 200 million (EUR 21 million) the incidence of disability and illness. The hit P&C insurance’s Swedish business. for property (per risk) and per event insurance risk in life insurance is due to The business area industrial was affected In terms of insurance classes, Motor the underwriting and provision risks. The the most. The total estimated cost, includ- insurance constitutes a relatively large underwriting risk contains a risk of losses ing reinstatement premiums, amounts to share of the overall business underwrit- due to pricing, concentration, improper about EUR 32 million, net of reinsurance. ten, especially in Sweden. Due to the reinsurance coverage or random fluctua- The total impact on the combined ratio is long-tailed nature of Swedish and Finn- tions in frequency and size of claims. The 0.9 per cent. ish motor third party liability insurance, provision risk is the risk that the carrying changes in future inflation and in legisla- amounts of the liabilities are not adequate P&C insurance concentration risks tion could affect the overall underwriting to cover all the liabilities. In life insurance P&C insurance underwrites business in result. This risk is managed by investing the main risk is due to the discount inter- the Nordic and Baltic countries (Figure in assets with similar characteristics to the est rate risk, but it also contains the same 15). The insurance portfolio is relatively liabilities, and by closely following and risks as the underwriting risk, such as diversified as business is underwritten in immediately reacting to any proposed or random fluctuations in the frequency and different geographical areas and in several decided changes in legislation. size of claims. See also ”Market risks of classes of insurance. life insurance liabilities” on page 37.

42 Sampo Group I Board of Directors’ Report and Financial Statements (Table 17) Changes in liabilities arising from insurance and investment contracts of Sampo Life Group *)

liability claims expense Guaranteed liability share EURm 2004 premiums paid charges interest Bonuses other 2005 % Sampo Life Parent Company Group pension 2,254 209 –144.6 –13 79 13 –16 2 383 40 Guaranteed rate 3.5% 2,254 206 –144.5 –13 79 13 –16 2 380 40 Guaranteed rate 2.5% or 0.0% 0 3 –0.1 0 0 0 0 3 0 Individual pension insurance 1,294 81 –75.6 –9 56 1 0 1 348 22 Guaranteed rate 4.5% 1,207 54 –66.9 –7 53 0 0 1 240 21 Guaranteed rate 3.5% 81 23 –8.6 –2 3 1 0 98 2 Guaranteed rate 2.5% or 0.0% 6 4 –0.1 0 0 0 0 10 0 Individual life insurance 705 43 –113.6 –10 24 1 –24 626 10 Guaranteed rate 4.5% 223 14 –17.3 –2 10 0 0 228 4 Guaranteed rate 3.5% 460 19 –95.2 –6 14 1 –23 371 6 Guaranteed rate 2.5% or 0.0% 21 10 –1.1 –2 1 0 –2 27 0 Capital redemption operation **) 179 1 –46.5 0 6 0 0 138 2 Guaranteed rate 4.5% 45 0 0.0 0 2 0 0 47 1 Guaranteed rate 3.5% 130 0 –46.5 0 4 0 0 87 1 Guaranteed rate 2.5% or 0.0% 4 1 0.0 0 0 0 0 5 0 Unit linked liabilities 862 272 –50.7 –17 0 0 171 1 237 21 Individual pension insurance 231 80 –1.6 –7 0 0 62 365 6 Individual life 574 171 –45.7 –8 0 0 97 788 13 Capital redemption operations **) 13 4 –3.0 0 0 0 2 16 0 Group pension 43 17 –0.4 –2 0 0 10 68 1 Future bonus reserves 18 0 0.0 0 0 0 –5 14 0 Reserve for decreased discount rate 122 0 0.0 0 0 0 46 168 3 Assumed reinsurance 22 –13 –2.6 0 0 0 0 6 0 Other liabilities 23 41 –12.0 –8 0 0 –1 43 1 Sampo Life Parent Company total 5,478 633 –4,45.5 –56 166 16 171 5 962 99 Subsidiaries 19 22 –2.3 –2 1 0 1 38 1 Unit linked liabilities 9 16 –1.0 –1 0 0 2 25 0 Other liabilities 10 6 –1.3 –1 1 0 –1 13 0 Sampo Life Group total 5,497 655 –4,47.8 –59 167 16 173 6 000 100

*) Before reinsurers’ share **) Investment contracts

Analysis of the change in liabilities in 2005. The most remarkable items in the column “Other” are the savings conversions between unit-linked and with-profit savings and the changes in the values of assets linked to unit-linked policies. The column also includes the risk result of Table 18.

Among the most significant of the which in Sampo Life is EUR 0.5 million. Table (18) on page 44 shows the result insurance risks included in life insurance To mitigate the effects of possible catas- of insurance risks in life insurance policies. policies is protection covering death, dis- trophes, Sampo Life participates in the The ratio of the actual claims expendi- ability and medical expenses. These risks catastrophe pool of Finnish life insurance ture of life insurance cover to the claims are limited through careful risk selection, companies. Possible pandemics are not expenditure assumed in insurance premi- by pricing to reflect the risks and costs, covered by the reinsurance. At this stage, ums was 87 per cent in 2005. by setting upper limits for the protection no reliable predictions of mortality in the Although group life insurance granted and by reinsurance. The amount case of a pandemic can be made. As an includes some concentration risk, the of individual risk is limited by reinsurance. indication for the reader, the effect of dou- whole portfolio is quite well diversified The companies’ Board of Directors annu- bling normal mortality of insurance port- and does not include major concentration ally determines the maximum amount folio, would mean around EUR 15 million risks. of risk to be retained for its own account, in additional expenditure for Sampo Life.

Sampo Group I Board of Directors’ Report and Financial Statements 43 IfRS FINANCIAL STATEMENTS: Sampo Risk Management Disclosures 2005

The most noteworthy of the insurance Risk management process mittee and the asset and liability commit- risks related to pension insurance is the and methods tee (ALCO). increase in life expectancy. The assumed Risk management governance The RCC supervises the Group’s life expectancy in group pension premi- risks and the quality and scope of its risk ums and liabilities was raised in 2002 The risk management process consists management. It meets on a quarterly basis and, since then, the mortality results in of risk control and risk management. with an agenda that consists of the over- group pension policies have been profit- Risk control consists of formulating risk all risk and capital summary reports and able (Table 18). In most individual pension management principles, setting limits specific risk reports focusing on actual risk insurance, the longevity risk is smaller and granting authorisations, manage- areas. than in group pension insurance due to ment accounting and risk calculation, The business line organisations make the fixed term of the policies and because assessing the economic capital needed, customer business-related decisions and most policies have been issued with life and monitoring the functionality of the ensure that decisions are made within the insurance that compensates the longevity risk management process. Risk manage- given authorisations and limits. In P&C risk. In some older individual policies, the ment consists of identifying and pricing insurance a new risk governance model mortality rate and structure of products risks, risk-taking decisions, and portfolio has been established. It includes a central- differs from the remainder of the portfo- management. Sampo plc’s Board of Direc- ised P&C Insurance Risk Control Com- lio, for which reason the liabilities of such tors and the Risk Control Committee, mittee, which reports to the Risk Control policies were supplemented on 31 Decem- together with the Boards of Directors of Committee and to Risk Control. Group’s ber 2004. The mortality result within indi- subsidiaries, the Group-level bodies and Risk Control is independent from busi- vidual pension policies has been close to the Financial Control, share the responsi- ness activities. Group’s Risk Control is zero during recent years (Table 18). bility for risk control. Line organisations responsible for monitoring the risk posi- Tables (17), (18) and (19) show the are responsible for risk management. tion of the Group. amount of Sampo Life’s risks from differ- The Board of Directors of Sampo Market risk management ent perspectives. plc is responsible for ensuring that the The provision risk is managed by Group’s risks are properly managed and The Group’s Asset And Liability Com- analysing and annually reviewing the controlled. The Board sets the principles mittee sets limits, control parameters and assumptions related to the liabilities. Due of risk management and provides guid- risk-taking authorisations for market risks to the process of reviewing risk variables, ance on the organisation of risk manage- in banking activities and formulates the the effect of changes in the underlying ment and internal control in the busi- main risk-taking policies for the Boards of variables on insurance liabilities is not ness areas. The Board monitors the risk the operating companies. symmetrical. While improved estimates management process and has established The daily management of market normally have no impact on the value of a Risk Control Committee (RCC) to risks is done by the responsible units using liabilities, a significant deterioration in control the group’s risks. The major risk- various sensitivity analyses for positions estimates does have an impact. related decisions are made within the against changes in market variables. In framework of the given authority in the addition, there is independent monitoring investment committees, the credit com- by risk control. The Group Treasury manages the interest rate and liquidity risks of the (Table 18) banking book within its authorisations Claim ratios of Sampo Life after reinsurance and limits. These risks arise from Sam- 2005 2004 risk claim claim risk claim claim po’s customer business. The objective is to EURm income expense ratio income expense ratio preserve the net interest margin generated Life insurance 18.2 14.6 80% 17.3 11.5 66% by customer business. The interest rate Mortality 8.6 5.8 67% 8.5 4.8 56% and liquidity risk of the banking book is Morbity 9.7 8.8 91% 8.9 6.9 78% managed by using derivatives and debt Pension 50.7 45.6 90% 47.0 42.9 91% instruments. To reduce liquidity risks, Individual pension 7.5 7.8 105% 6.5 6.5 100% some of the market-based funding must Group pension 43.2 37.8 88% 40.5 36.4 90% be acquired in maturities corresponding Mortality 36.8 33.4 91% 34.6 31.7 92% to the assets. A wide range of available Disability 6.3 4.4 69% 5.9 4.7 80% financing sources with varying maturities Sampo Life 68.9 60.2 87% 64.3 54.4 85% is used. Customer behaviour data related to demand deposits and the prepayment Claim ratios of Sampo Life after reinsurance. The figures for individual pension policies characteristics of household loans are tak- in 2004 do not include the provision supplemented at 31 December 2004. en into account in the management process and in the related market risk models.

44 Sampo Group I Board of Directors’ Report and Financial Statements (Table 19) Maturity of liabilities arising from insurance and investment contracts of Sampo Life Group *) M matures in the years 2006 2008 2010 2015 2020 2025 2030 EURm duration –2007 –2009 –2014 –2019 –2024 –2029 – Sampo Life Parent Company Group pension 10.5 329 342 782 643 504 371 657 Guaranteed rate 3.5% 10.5 329 342 782 643 504 370 655 Guaranteed rate 2.5% or 0.0% 13.3 0 0 1 1 1 1 1 Individual life insurance 7.8 216 276 561 351 217 124 108 Guaranteed rate 4.5% 7.6 208 261 520 319 196 109 91 Guaranteed rate 3.5% 10.0 7 14 37 29 19 14 16 Guaranteed rate 2.5% or 0.0% 10.2 1 1 4 3 2 1 2 Individual life insurance 3.8 335 131 167 37 16 12 38 Guaranteed rate 4.5% 3.9 128 62 39 18 8 7 15 Guaranteed rate 3.5% 3.5 200 59 119 16 6 4 17 Guaranteed rate 2.5% or 0.0% 6.6 6 10 10 3 2 1 6 Capital redemption operations **) 3.0 25 96 33 0 0 0 0 Guaranteed rate 4.5% 2.4 3 50 0 0 0 0 0 Guaranteed rate 3.5% 3.3 21 46 30 0 0 0 0 Guaranteed rate 2.5% or 0.0% 3.7 1 1 3 0 0 0 0 Unit linked liabilities 7.8 172 264 485 209 139 112 161 Individual pension insurance 14.0 10 22 88 102 101 88 122 Individual life 4.8 156 227 367 88 20 9 5 Capital redemption operations **) 4.0 1 8 10 0 0 0 0 Group pension 13.3 5 8 20 19 18 15 34 Future bonus reserves 1.0 14 0 0 0 0 0 0 Reserve for decreased discount rate 5.3 55 25 39 22 12 6 7 Assumed reinsurance 1.0 5 1 0 0 0 0 0 Other liabilities 0.6 42 1 0 0 0 0 0 Sampo Life Parent Company Total 8.2 1,192 1,135 2,068 1,262 888 625 971 Subsidiaries 5 3 9 15 6 4 5 Unit linked liabilities 4 1 5 11 4 3 3 Other liabilities 1 1 4 4 3 1 1 Sampo Life Group total 1,197 1,138 2,077 1,277 894 629 976

*) Before reinsurers’ share **) investment contracts

Maturity of Sampo Life Group’s business in force at 31 December 2005. The maturing amounts of Sampo Life are evaluated by assum- ing lapse rates based on past experience. guaranteed interests and bonus rates based on the liability adequacy test

Trading operations cover Sampo’s cus- Risks are also monitored and limited by Credit risk management tomer-related businesses in interest rate, means of stress testing and exposure lim- The Group’s guidelines lay down uniform foreign exchange, stock, commodity and its, thus ensuring that agreed levels of risk principles for credit risk taking, with the credit products and their combinations. are not exceeded in exceptional market aim of ensuring good quality in the credit The trading unit operates independently conditions. process. Sampo’s Board of Directors annu- (5) within the set VaR limits. See table on Risks relating to the investment port- ally approves the credit risk policy. This page 35. folios of the insurance companies are also sets the parameters for credit risk appetite, Market risks in trading are measured measured with the var technique. The expressed by the economic capital allo- and limited by using a technique called confidence level used is 97.5 per cent and cated to credit risks and the diversification Value-at-Risk (VaR), and are calculated the investment horizon is one month. The of risks from different perspectives. The within a confidence level of 99 per cent for covariances are calculated from five-year targeted economic capital is set at a level overnight risk. The volatility and correla- data, using exponential weighted moving below the actual capital in the balance tion parameters required by the model are averages. Stress testing is also performed sheet. Lending is focused on customers calculated daily on the basis of 60-bank- in support of the VaR calculations. operating in Finland and the Baltic coun- ing day historical market observations.

Sampo Group I Board of Directors’ Report and Financial Statements 45 IfRS FINANCIAL STATEMENTS: Sampo Risk Management Disclosures 2005

tries. Limits are set for risk concentra- resulting in a financial loss, or a customer tion the economic capital tied up in the tions, measured by the ratio of a customer is forced into corporate or debt restructur- contract can be calculated. Sampo applies group’s nominal exposures to the Bank’s ing or bankruptcy. Sampo Bank regularly risk-weighted pricing to loans. The inci- total capital, as well as by the ratio of a utilises its own data to test the default dence of delayed loan repayments and the customer group’s economic capital, cal- probabilities given to the rating categories development of non-performing loans are culated by a credit risk model, to the total and changes them, when necessary. monitored and reported on continuously. economic capital. The risk concentration Credit risk monitoring is based on the parameters are at a clearly lower level than continuous monitoring of both macro- Collateral valuation official norms. economy and individual customer busi- All collateral is valued at the time it is The Group’s Credit Committee is ness sectors, and customer creditworthi- pledged and regularly thereafter. The val- authorised to make all credit decisions. ness, collateral values and covenants. The ues of different collateral types are divided The authority is further delegated to credit risks of the customer business units into four quality categories on the basis of separate sub-committees responsible for are reviewed systematically at least once volatility and liquidity. Only the value of domestic and Baltic customers, and to a year, monitoring the appropriateness collateral in the two best quality categories authorised credit officers in customer of credit decisions, categorising the cus- is taken into account in calculating the business units. The nominal amount of tomers and collateral, and implementing loss given default for each customer. For the authorisation varies according to the action plans created to reduce the risks of example, the two best categories do not economic capital and the total exposure customers in the lowest rating categories. exceed 70 per cent of the market value of the customer after the decision. All Country, customer and product limits of dwellings or 60 per cent of the market credit requests are prepared in the cus- are monitored daily. The achievement of value of business premises with good tomer business units. Credit decisions credit policy targets is followed monthly. liquidity. Each collateral type has its own are primarily based on the risk-adjusted In addition, the ratings of listed cus- maximum per cent of market value which return on risk-adjusted capital. The most tomers are monitored by a model which is used when part of the market value is important factors are creditworthiness, the estimates the default probabilities by com- allocated to each quality categories. loss given default, and the maturity of the bining stock market and financial state- respective customer exposures. ments information. Credit risk models The Group’s Rating Committee, The profitability and target-setting Sampo Bank utilises a statistical credit which is independent of the credit deci- of the operations of customer-responsible risk model to quantify its credit risks. The sion process, decides on all significant units and the pricing of the credit risk of model estimates the expected credit losses ratings. The use of credit decision-making the customer relationship is estimated by and economic capital for credit risk. The authority is controlled by the limits set using the return on risk-adjusted capital counterparty level inputs to the model are for countries, customers, customer groups (RORAC) calculation. the default and transition probabilities and products and by regular reporting implied by the Sampo ratings and the requirements. Credit risks of retail customers estimated loss given default. The latter is Credit risks of corporate customers The creditworthiness of retail customers a function of the counterparty’s exposure is assessed by analysing each customer’s and collateral position, and its estimated Each significant corporate customer has or household’s income, living expenses other recoverables. In addition, the diver- a customer account officer who is familiar and debt repayment obligations, as well sification of the bank’s corporate exposures with the customer’s business and moni- as other factors that have a bearing on affects the amount of the loss. tors its development. In addition, a credit the customer’s solvency. These are used At the beginning of 2005, the risk analyst who is independent of the cus- for customer credit scoring. The scoring parameter estimates of corporate custom- tomer business units continually analyses technique varies by product, because the ers were updated based on an analysis of the customers with the biggest credit risks information available for each product the Sampo data. The most substantial or largest exposures. differs. A default probability is attached to change occurred in the amount of the The group has an internal 12-stage the credit score calculated by each scoring loss given default, which, due to a more creditworthiness rating scale, which covers technique. Uncertainties related to the extensive definition of default, decreased more than 97 per cent of loans and other evaluation of creditworthiness are covered significantly in the case of a counterparty exposures in Sampo Group. The internal by using collateral which, in the case of default. The change caused a decrease in rating system has existed in its current long-term loans, is usually a dwelling. the economic capital for credit risks. Dur- form since 1997. The default probabilities Normally the value of a dwelling is based ing autumn 2005, the risk quantification given to the rating categories refer to the on recent housing trade. When updating parameters of private persons were tested possibility of future counterparty defaults. these values, regional indices are used. The by the Sampo data and updated at the A customer will be rated as default grade, “loss given default” is computed on the end of the year. The effects of the changes if interest and loan instalments are unpaid basis of the counterparty’s exposure and were insignificant. for over 90 days, loans must be restructured collateral position. Using this informa-

46 Sampo Group I Board of Directors’ Report and Financial Statements Investment management Sampo’s Board of Directors and each Within each business area of P&C of insurance companies insurance company’s Board of Direc- Insurance, separate underwriting and The investment operations of Sampo tors appoint an Investment Committee, pricing units are responsible for the tariffs Group’s insurance companies aim at which is responsible for the organisation and pricing of insurance contracts. Among achieving the highest possible returns and control of investment activities. The other things, statistical analyses of histori- at acceptable levels of risk, to ensure Investment Committee ensures compli- cal claims and individual analyses of major that both Sampo Life and the If Group ance with the principles and limits speci- undertakings are performed on a con- will, under all circumstances, exceed the fied in the investment policy and reports tinuous basis in order to secure accurate required solvency ratio and have suffi- to the company’s Board on investment pricing. cient and structurally suitable investment activities. Sampo Life’s Investment Com- Large claims are nevertheless an assets to cover the companies’ technical mittee meets every second week and if ’s inherent part of the property and casualty provisions. The biggest risks threatening investment committee meets at least eight insurance business. In the Reinsurance investment performance are decreases in times a year. The Boards of Directors of Policy it is stated that reinsurance must the value of investments, and returns that both companies annually approve the risk be bought to provide the capacity needed are lower than that required by techni- management plan concerning the risks of and to give economic stability to P&C cal provisions. The intention is to limit the entire insurance company. Insurance companies. Based on statisti- these risks by diversifying the investment The credit risk in investment opera- cal methods and models, the need and portfolio as far as possible by instrument, tions can be broken down into issuer risk optimal choice of reinsurance is evaluated sector and country. Currency risks are and counterparty risk. Issuer risk is often by Corporate Finance and Risk Manage- managed by keeping assets and liabilities associated with a direct holding in a secu- ment. The remaining net exposure must sufficiently balanced across currencies or rity, while counterparty risk is related to meet the capital requirements (regula- by using derivatives. If necessary, deriva- derivatives. The essential difference in tory, economic and rating) and the cost of tives are also used to hedge the investment terms of risk is that in the former case, the reinsurance must be favourable compared portfolio against value decreases. entire value of the bond is at risk, whereas to the cost of capital. The Boards of Directors of the in the latter case it is only the current mar- To analyse the exposure to natural Group’s insurance companies annually ket value of the derivative contract that is catastrophes, the likelihood of severe losses approve the companies’ investment poli- at risk. Standard & Poor’s and Moody’s and the need for reinsurance, P&C Insur- cies which define the target allocation ratings are used to judge the creditworthi- ance co-operates with external consultan- of the investment portfolio, the limits by ness of issuers and counterparties. The cies. Two different approaches are used for instrument, the organisation of invest- credit risk is controlled by restrictions and these analyses – statistical modelling in ment activities and the authorities to make limits given in the investment policy, and which historical losses are used to estimate and execute decisions. In allocating assets followed-up on a continuous basis. distributions for the frequency and size of and setting return and liquidity require- P&C insurance losses, and so-called technical, or catastrophe, modelling in which catastrophes are ments, the structure and requirements of Underwriting the companies’ technical provisions, their simulated based on historical and meteo- risk-bearing capacities, regulatory require- The Underwriting Policy is the principal rological data and from which insurance ments, rating ambitions and risk capac- document for underwriting activities and losses are calculated (taking into account ity/appetite are taken into account. The gives general principles, restrictions, lim- vulnerability, exposure and policy terms). investment risks are monitored by sensi- its and directions for the organisation of Reserving tivity analysis. In this case, standard devia- underwriting activities. The Underwriting tions by types of asset, annually approved Committee is responsible for maintaining The roles and responsibilities with respect by each company’s Board of Directors, the underwriting policy and for making to the balance sheet, and more specifi- are used in calculating the long-term risk proposals for adjustments cally with respect to technical provisions of value changes in the investment port- The Underwriting Policy is supple- or reserves, are outlined in the Technical folio. In calculating the overall risk, all mented with detailed underwriting guide- Guidelines. If ’s Chief Actuary is respon- markets are assumed to lose their value lines that are intended to properly secure sible for developing and presenting guide- by one standard deviation simultaneously. the assessment and quantification of risks. lines on how the technical reserves are to Additionally, the total risks of the invest- These guidelines cover, among other be calculated and for assessing whether ment portfolios are monitored using the things, tariff and rating models for pricing, the overall level of reserves is sufficient Value-at-Risk technique. The investment guidelines in respect of standard condi- in relation to the policy established. policy also includes guidelines on the use tions and manuscript wordings, as well The Chief Actuary produces a quarterly of derivatives. The risk of using derivatives as underwriting authorities and under- consolidated report on the adequacy of is monitored every month using the same writing limits. P&C Insurance also sets technical reserves, which is submitted to technique. requirements which its customers have to the Board of Directors, If ’s Risk Control fulfil before insurance is provided. Committee and If ’s CEO.

Sampo Group I Board of Directors’ Report and Financial Statements 47 IfRS FINANCIAL STATEMENTS: Sampo Risk Management Disclosures 2005

The Actuarial Committee is a prepa- Dynamic financial analysis people or external events. Operational ratory and advisory board for If ’s Chief In addition to the specific risks that are risks also include legal and reputational Actuary. The Actuarial Committee makes individually associated with the insurance risks. Risks can be divided into eight recommendations on policies and guide- business or investment assets, P&C Insur- classes: lines for technical calculations, including ance is exposed to the aggregated effect • Internal fraud the actuarial sections of the Technical of such risks. Some of the risks P&C • External fraud Guidelines. The Actuarial Committee Insurance is exposed to work in opposite • Deficiencies in personnel management also monitors technical provisions and directions, creating natural hedges. To • Deficiencies in practices concerning gives advice to If ’s Chief Actuary regard- analyse the accumulation and diversifica- customers, products or business ing their adequacy. tion of risks, a Dynamic Financial Analy- • Damage to physical assets For business connected to the Run- sis (DFA) model is used. If ’s DFA model • Business disruption and system failures Off portfolios, P&C Insurance uses exter- is a market-recognised simulation model • Deficiencies in execution, delivery and nal actuarial firms with local knowledge to which has been customised to the specific process management evaluate technical provisions. needs of P&C Insurance. • Changes in the external operating The estimation of technical provi- • environment sions for P&C insurance portfolios always The results of such analyses are used to Operational risks are reflected, for includes an element of uncertainty. The decide on example, in costs, claims, loss of repu- provisions represent an estimate of future • the overall capital needs for tation, business disruptions or false claims payments. The estimates are based P&C Insurance and its subsidiaries information concerning positions, risks on the facts and data known and available • the allocation of capital to the various and results. The management of opera- at the balance sheet date. The basis for the lines of business in order to achieve tional risks enhances the efficiency of the estimation is historical claims. In addi- consistent profit targets throughout Group’s internal processes and decreases tion, trends in loss development, levels of the organisation fluctuations in returns. The co-ordinated unpaid claims, legislative changes, judicial • the allocation of investment assets management of operational risks gives decisions and economic conditions are between asset classes and regions management an overall view of the reali- taken into consideration. The methods • the requirements for reinsurance sation and management of risks, as well used in general are the Chain Ladder as of the changes in risk position shown and the Bornhuetter-Fergusson methods Life insurance risk management by the risk indicators and analyses of the combined with projections of numbers of Sampo Life analyses, at least annually, the external environment. claims and average claims costs. actual claims expenditure and the claims The business areas are responsible for The uncertainty of technical provi- expenditure assumed in insurance pre- organising and monitoring operational sions is normally larger for new portfolios miums of every risk cover. See table (18). risk management in accordance with the for which complete run-off statistics are In both disability and medical expenses principles defined by Group management. not yet available, and for portfolios where policies, the company has the right to raise The centralised functions (security, infor- claims are often not settled for a long insurance premiums for existing policies mation management, legal affairs, human time. If the claims involve compensation if the claims experience deteriorates. In resources) support the business units in for personal injuries, the uncertainty in the addition, the administration and acquisi- their own expert areas. The Group’s risk estimates increases even further. Typical tion expenses of every product are fol- management organisation develops meth- portfolios with these characteristics are lowed annually. Based on these analyses, ods to manage operational risks, co-ordi- Workers’ Compensation (WC), Motor Sampo Life sets prices for the new busi- nates the risk management operations of Third Part Liability (MTPL) and Per- ness and increases the liabilities of existing the business units and companies and is sonal Accident and Liability. business if necessary. In addition to this, responsible for the group’s risk manage- For statutory insurance lines such as Sampo Life makes a quarterly liability ment reporting. Internal auditing assesses Motor Third Party Liability and Workers’ adequacy test. Decisions on changing the adequacy and efficiency of internal Compensation, legislation differs signifi- prices and reserving principles are made control and risk management. The com- cantly between countries. Some of the by the Board of each life company. pliance function supports the business Finnish, Swedish and Danish provisions At inception of reinsurance the units in operating in compliance with reg- consist of annuities sensitive to changes in accepted credit risk of the reinsurer is ulations, and is responsible for the validity mortality assumptions and discount rates. considered. The credit risks of reinsurance of the released financial information. In particular, the swedish technical provi- assets are followed. The Group’s companies and units use sions are sensitive to changes in inflation. the self-assessment method to map their The proportion of the technical provisions Operational risk management major risks and their probabilities and for claims related to MTPL and WC is 66 Operational risks are defined as the risks significance. In this connection, internal per cent of the total claims provisions. of losses attributable to inadequate or controls and instructions are also evalu- defective internal processes and systems, ated. The business units of Sampo Bank

48 Sampo Group I Board of Directors’ Report and Financial Statements and Sampo Life make self-assessments Insurance and a new crisis management The capital adequacy framework of operational risk annually, whereas in if organisation has been established. Exercis- consists of three complementary pillars these assessments are made quarterly. es designed to test the crisis management – minimum capital requirements, a super- The risk indicator values are reported organisation have been conducted in all of visory review process and market disci- regularly, and the operational risk losses as the nordic and baltic countries. The P&C pline.The reform will result in substantial soon as they are noticed. Insurance actions against money launder- changes in all of these pillars. The linkage Risk indicators have been set to depict ing and terror financing have been revised, between them is strong. For example, the changes in the risk position. Their valid- and P&C Insurance has adopted Sampo approach that banks adopt to calculate the ity is assessed regularly. Generally, the risk Group guidelines concerning this area. minimum capital requirement for credit indicators are process deviations, volume Reports on operational risks are sub- risk affects both disclosure requirements changes, customer feedback and changes mitted to the management and Board of and the standards for risk management in the external and internal operating Directors quarterly. The reports contain processes within supervisory review. environment. The business units follow information on the current risk position, The Basel II compliance project cur- the indicator values systematically. The the actual incident data and the Group rently underway in Sampo is responsible indicator values are compared to earlier wide risk indicators. for Sampo Group’s full compliance with averages or with some target level. For Continuity plans have been prepared the new framework. The biggest changes example, in the Group Treasury and Trad- and revised for the most critical business affecting Sampo’s capital adequacy cal- ing business area, regular process meetings areas. On the basis of these plans, key culations are the new capital adequacy are arranged in order to follow operational functions can be continued in situations requirement for operational risks and risks. Company and Group level risk indi- of possible disruption. The plans are regu- the possibility to use the Internal Rat- cators have also been set. larly tested and updated at least annually. ings Based Approach for calculating With respect to operational risks, Continuity issues are reported to Sampo credit risks. Sampo has already used the internal loss incident data is collected plc’s Board of Directors. Internal Ratings Based Approach for systematically. Incidents with direct costs corporate customers for many years and, exceeding a fixed sum are reported to Preparation for changes in with respect to retail customers, for some Group risk management. Incidents are the operating environment years. During 2005 these internal mod- classified into risk classes, and the event The regulations affecting the capital els were further developed to correspond control points and cost structure are ana- adequacy of Sampo Group’s business even better with the requirements of the lysed. Operational risk incidents may also areas will change in the coming years. capital adequacy calculations. In addition, lead to credit losses. These incidents are The reform of credit institution activity the main databanks and risk evaluation followed separately. is known as the basel ii reform. The cor- methods required in the reform have been The majority of the reported incidents responding reform affecting insurance developed. are in the risk class “Deficiencies in execu- companies is known as Solvency II. The Sampo Bank left the application to tion, delivery and process management”, new legislation concerning the capital use the internal ratings based approach followed by “External fraud” and “Busi- adequacy of financial groupings came into for credit risks during 2005. Sampo Bank ness disruption and system failures”. The force in Europe at the beginning of 2005. is planning to apply the Standardized Group’s business units arrange their insur- With respect to banking, the aim of Approach for operational risks. ance cover in accordance with the Group’s the EU’s capital adequacy framework The solvency reform of insurance joint insurance policy. reform is to increase the risk sensitivity companies (Solvency II) is also under A wide variety of banking services is of banks’ capital adequacy calculations, development. Solvency II should encour- available in the internet and the use of and to encourage banks to develop their age and give incentives to insurance com- web services has increased rapidly. Main- internal risk management systems in line panies to measure and manage their risks. tenance of the service level of Sampo with the recommendations of the Basel To some extent the solvency II approach Bank’s web banking services requires that Committee. According to the proposal and rules will be compatible with Basel II. internal controls and risk management on capital adequacy, banks can select the Solvency II is not expected to come into methods are systematically complied with. method of calculating capital adequacy force before 2010. Risk management is evaluated regularly that is the most appropriate for the bank’s SFSA has developed a new super- in the light of changes in activities and own risk management system. The reform visory tool - the traffic light system - to the environment. There are updated risk aims at maintaining the capital base in the measure exposure to financial risks in life- analyses concerning the main activities, international banking system at its present insurance companies and occupational systems, projects and processes. The devel- level. The new capital adequacy frame- pension funds. The traffic light system opment and maintenance of activities is in work will affect all credit institutions and will be implemented in 2006. There will a specified documented form. investment firms in the EU. The reform be no impact on if, If is a P&C insurance A new continuity planning procedure will probably come into force in stages company. has been implemented throughout P&C from the beginning of 2007.

Sampo Group I Board of Directors’ Report and Financial Statements 49 IFRS FINANCIAL STATEMENTS Segment Information

The Group’s business segments are Banking and investment services, P&C insurance, Life insurance and Other operations. Other operations comprise the operations of the holding company and the Primasoft Oy information technology firm.

The Group’s secondary segmentation is based on geographical distribution. The reported segments are Finland, Sweden, Norway, Denmark, the Baltic countries and other countries.

Inter-segment pricing is based on market prices. Inter-segment transactions, assets and liabilities are eliminated in the consolidated financial statements on a line-by-line basis.

Depreciation and amortisation by segment are disclosed in Note 12 and investments in associates in Note 20.

Consolidated Income Statement by Business Segment for Year Ended 31 December 2005

Banking and p&c life elimina- EURm investment insurance insurance other tions Group

Net interest income 341 –39 8 310 Net income from financial transactions 69 0 6 75 Net fee and commission income 221 –1 –17 203 Impairment losses on loans and receivables 3 –2 1 Insurance premiums 3,709 649 4,358 Net income from investments 42 460 586 15 –23 1,080 Other operating income 60 18 2 76 –84 72 Total operating income 736 4,187 1,238 49 –111 6,100

Claims incurred –2,457 –557 –3,014 Change in liabilities for insurance and investment contracts –390 –390 Staff costs –200 –447 –20 –44 5 –706 Other operating expenses –220 –484 –37 –55 100 –695 Total operating expenses –420 –3,387 –1,004 –98 105 –4,805 net income between the segments 28 35 18 –81

Profit before taxes from continuing operations 316 800 234 –49 –6 1,295

Profit before taxes from discontinued operations 0 0 0

Profit before taxes 316 800 234 –49 –6 1,295

Taxes –332 Profit for the financial year 963

Attributable to Equity holders of parent company 949 Minority interest 14

50 Sampo Group I Board of Directors’ Report and Financial Statements IFRS FINANCIAL STATEMENTS: segment information Consolidated Income Statement by Business Segment for Year Ended 31 December 2004

Banking and p&c life elimina- EURm investment insurance insurance other tions Group

Net interest income 322 –38 12 297 Net income from financial transactions 74 –5 –6 64 Net fee and commission income 197 –1 –17 178 Impairment losses on loans and receivables 11 0 11 Insurance premiums 2,697 505 3,202 Net income from investments 29 160 338 162 689 Other operating income 49 15 3 116 –90 94 Total operating income 682 2,872 846 235 –101 4,535

Claims incurred –1,742 –464 –2,206 Change in liabilities for insurance and investment contracts –191 –191 Staff costs –185 –329 –19 –46 13 –567 Other operating expenses –218 –375 –29 –83 88 –617 Total operating expenses –403 –2,445 –703 –129 101 –3,580 net income between the segments 29 30 21 –79

Profit before taxes from continuing operations 279 427 144 106 0 955

Profit before taxes from discontinued operations –5 –2 –7

Profit before taxes 274 427 142 106 0 948

Taxes –100 Profit for the financial year 848

Attributable to Equity holders of parent company 817 Minority interest 31

Sampo Group I Board of Directors’ Report and Financial Statements 51 IFRS FINANCIAL STATEMENTS: segment information Consolidated Balance Sheet by Business Segment at 31 December 2005

Banking and p&c life elimina- EURm investment insurance insurance other tions Group

Assets Cash and balances at central banks 1,290 366 211 –201 1,665 Financial assets at fair value through p/l 2,409 87 46 3 –8 2,537 Loans and receivables 18,911 62 –55 18,918 Investments 74 9,625 5,707 3,374 –3 468 15,312 Investments related to unit-linked contracts 1,262 1,262 Reinsurers’ share of insurance liabilities 553 5 558 Intangible assets 66 595 157 26 843 Property, plant and equipment 82 29 5 19 135 Other assets 344 1,104 92 108 –67 1,581 Tax assets 18 127 7 20 1 173 Total assets 23,194 12,484 7,493 3,611 –3,797 42,985

Liabilities Financial liabilities at fair value through p/l 464 149 36 649 Amounts owed to credit institutions and customers 12,336 106 –182 12,260 Debt securities in issue 8,461 443 100 1,036 –393 9,647 Liabilities for insurance and investment contracts 7,885 4,738 12,623 Liabilities for unit-linked insurance and investment contracts 1,262 1,262 Other liabilities 892 654 70 101 –67 1,650 Tax liabilities 21 339 180 5 545 Total liabilities 22,175 9,470 6,386 1,248 –642 38,637

Equity Share capital 96 Reserves 1,814 Retained earnings 2,412 Equity attributable to parent company’s equityholders 4,322 Minority interest 26 Total equity 4,348

Total equity and liabilities 42,985

52 Sampo Group I Board of Directors’ Report and Financial Statements IFRS FINANCIAL STATEMENTS: segment information Consolidated Balance Sheet by Business Segment at 31 December 2004

Banking and p&c life elimina- EURm investment insurance insurance other tions Group

Assets Cash and balances at central banks 921 269 179 –206 1,163 Financial assets at fair value through p/l 2,538 176 38 5 –5 2,751 Loans and receivables 15,835 95 –61 15,869 Investments 78 8,687 5,275 3,540 –3,599 13,981 Investments related to unit-linked contracts 882 882 Reinsurers’ share of insurance liabilities 679 16 696 Intangible assets 141 623 156 24 944 Property, plant and equipment 77 33 20 26 155 Other assets 280 1,072 84 83 –46 1,472 Tax assets 19 191 3 10 224 Total assets 19,889 11,730 6,653 3,782 –3,917 38,138

Liabilities Financial liabilities at fair value through p/l 451 129 9 0 589 Amounts owed to credit institutions and customers 10,985 313 –260 11,037 Debt securities in issue 6,625 271 100 1,222 –290 7,928 Liabilities for insurance and investment contracts 7,600 4,626 12,226 Liabilities for unit-linked insurance and investment contracts 884 884 Other liabilities 710 762 53 140 –55 1,610 Tax liabilities 47 225 117 10 399 Total liabilities 18,817 8,987 5,789 1,685 –606 34,673

Equity Share capital 95 Reserves 1,622 Retained earnings 1,723 Equity attributable to parent company’s equityholders 3,440 Minority interest 26 Total equity 3,465

Total equity and liabilities 38,138

Sampo Group I Board of Directors’ Report and Financial Statements 53 IFRS FINANCIAL STATEMENTS: segment information Geographical segment information

Revenue by geographical segment

EURm Finland sweden norway denmark Baltic other total Income 2005 Banking and investment services 683 – – – 53 – 736 P&C insurance 807 1,184 1,334 293 97 –5 3,709 Life insurance 628 0 1 0 21 – 649 Other business 49 – – – – – 49 Total 2,167 1,184 1,334 293 171 –5 5,144

Income 2004 Banking and investment services 647 – – – 37 –1 682 P&C insurance 569 908 941 220 63 –4 2,697 Life insurance 499 – – – 6 – 505 Other business 235 – – – – – 235 Total 1,950 908 941 220 106 –5 4,120

The revenue of Banking and investment services and Other operations includes the total operating income of those segments.

The revenue of insurance businesses includes insurance premiums, consisting of premiums earned for P&C insurance and premiums written for Life insurance.

Assets by geographical segment

EURm Finland sweden norway denmark Baltic other elimination total Assets 2005 Banking and investment services 21,276 – – – 1,918 – – 23,194 P&C insurance 455 10,546 628 93 190 573 – 12,484 Life insurance 7,441 5 – – 46 – – 7,493 Other business 3,611 – – – – – – 3,611 Total 32,782 10,551 628 93 2,154 573 –3,797 42,985

Assets 2004 Banking and investment services 18,701 – – – 1,183 5 – 19,889 P&C insurance 489 9,450 654 43 134 960 – 11,730 Life insurance 6,626 – – – 27 – – 6,653 Other business 3,782 – – – – – – 3,782 Total 29,598 9,450 654 43 1,345 964 –3,917 38,138

Investments of P&C insurance are managed concentratedly and in the segment reporting they are allocated to Sweden.

54 Sampo Group I Board of Directors’ Report and Financial Statements IFRS FINANCIAL STATEMENTS Other Notes

1 Transition to International Financial Reporting Standards, IFRS Sampo adopted the IFRSs in its consolidated financial statements on 1 Jan. 2005. The transition included the adoption of IFRS 1 First time adoption. The transition date was 1 Dec. 2004. The comparitive figures for 2004 have been adjusted according to IFRSs.

In the opening balance of the comparison year 2004 the adoption of IFRSs increased Sampo Group’s equity by EUR 307 million.

Sampo Group’s transition to IFRSs and the changes arising from it are illustrated on Sampo Group’s Internet-page (www.sampo.com/ir).

Most significant changes in accounting principles The most significant change from Sampo Group’s perspective is the valuation of financial instruments at fair value through p/l according to IAS 39. The change has an effect especially on the life insurance business where financial instruments were previously measured at the lower of cost and fair value. In banking and investment services financial instruments were largely measured even previously in accordance with IAS 39.

In accordance with the above, all derivative financial instruments are measured at fair value through p/l. This causes a change in the valuation of hedging derivative financial instruments, as, under the previous accounting practice, they were measured according to the same principles as the hedged balance sheet item.

The treatment of lease contracts according to IAS 17 Leases differs from the previous accounting practice. Contrary to the previous practice, the lessor will recognise the lease as a receivable instead of a tangible asset. Leases in which the risks and rewards incidental to ownership remain substantially with the Group are classified as operating leases. These assets are included in the Group’s property, plant and equipment, and related income is recognised as rental income. As a result of changes in accounting practice, there are changes between income statement and balance sheet items, but they have no material effects on the Group’s result or equity.

With respect to the impairment of financial assets, the most prominent change is the recognition of interest income on the impaired carrying amount of a loan. According to previous accounting practice, the interest income was reversed, if the loan became non-performing. According to IAS 39 the interest income continues to be recognised on the impaired carrying amount at the original effective interest rate.

In P&C insurance, in accordance with IFRS 4, insurance contracts are classified depending on the insurance risk either as insurance contracts or as other than insurance contracts. Those insurance products that do not include significant insurance risk have been classified as other than insurance contracts. Examples of these are Captive and Reverse Flow Fronting agreements. Income and expenses arising from these agreements are netted.

In the financial statements of the life insurance business, the products are classified according to the insurance risk either as insurance contracts or as investment contracts.

In the valuation of life investment contracts with a discretionary participation feature, national accounting principles are applied in the IFRS financial statements for the present. Hence the related insurance liability is calculated as previously, with the potential impact of the liability adequacy test taken into account, however.

Investments made to cover the requirements of both with-profit contracts and equity are managed comprehensively. Most of these investments are categorised as financial assets available-for-sale according to IAS 39. The changes in fair value of these assets are recognised in the fair value reserve of the equity.

With respect to unit-linked insurance contracts and investments covering these contracts, the current practice of valuing them at fair value, relating to the policyholder’s choice of investment, will be continued.

Sampo’s unit-linked life investment contracts offer policyholders the opportunity, as specified in the contract, to convert their savings to with-profit contracts. The accounting practice of these contracts remains the same. The unit-linked portion of these investment contracts accounts for 0.2 per cent of the total amount in the balance sheet.

According to the Finnish accounting practice, the equalisation provision, planned to even out changes in claims incurred, was previously recognised in technical provisions. In accordance with IFRS 4 the equalisation provision is no longer recognised as a liability, but as a component in the equity of the consolidated accounts. Continues, Note 1 →

Sampo Group I Board of Directors’ Report and Financial Statements 55 IFRS FINANCIAL STATEMENTS: OTHER notes

On the basis of Finland’s Act on Workers’ Compensation and Motor Third Liability, a collective guarantee item is accumulated collectively by the insurance companies selling these insurances. The idea is to guarantee payments of claims to policyholders in the case that one of the above-mentioned companies falls into liquidation or bankruptcy. Previously the collective guarantee item was recognised in technical provisions. As the purpose of accumulating the collective guarantee item is to prepare to settle a future obligation, the item is recognised, according to the Framework for the Preparation and Presenta- tion of Financial Statements of IFRS, in the Group’s equity until it is probable that the obligation will have to be settled.

The pensions paid on the basis of Finland’s statutory P&C insurance policies (Workers’ Compensation, Motor Third Liability and Medical Mal Practice) are raised annually by the employee pension insurance index in order to preserve the real value of the pensions. These index increments are not the responsibility of the insurance companies, but are financed by the so- called pay as you go principle; i.e. the amount of index increments collected as part of the insurance premiums each year equals the amount of index increments paid in that same year. According to the Finnish accounting practice, the collected index increment payments are recognised as insurance premiums written and the paid index increments as claims paid. In the IFRS financial statements the index increments are not recognised in premiums written nor in claims paid. As the index increments have no impact on income, they are netted.

IFRS 4 obliges the insurance company to perform a liability adequacy test. Based on this test Sampo’s technical reserves are adequate in both the P&C and the life insurance business.

Exemptions applied in the transition to IFRSs In its first-time adoption of IFRS, Sampo applies the following exemptions referred to in IFRS 1: IFRS 3 is not applied retrospectively to past business combinations that occurred before 1 Jan. 2004. The goodwill acquired in previous business combinations has been tested for impairment in accordance with IAS 36. No impairment losses were recognised in the opening balance sheet on the basis of these tests.

Sampo uses the exemption under IFRS 1 and does not show the cumulative translation differences that existed at the date of transition to IFRSs as a separate componenet of equity, but deems the cumulative translation differences to be zero.

With respect to investment property, an acquisition method is applied for the present in compliance with IAS 40.

Fair values are disclosed in the notes.

Sampo has two employee option programmes that fall under IFRS 2 Share-based Payment. The programmes date from the years 1998 and 2000 and the share options including in them have been granted before the Exposure Draft was published on 7 Nov. 2002. In accordance with IFRS 1 Sampo does not apply IFRS 2 to these employee option programmes.

Reconciliation of the Equity S share preferred fair share premium legal capital value retained minority EURm capital account reserve notes reserve earnings total interest total Equity at 31 Dec. 2003, FAS 93 971 370 10 1,572 3,016 3,016 Impact on the figures as a result of adopting the international financial reporting standarts (IFRS) Transfer of preferred capital notes to liabilities 1) –10 –10 –10 Recognition of equalisation provision into p/l account 2) 4 4 4 Valuation of shares available-for-sale 3) 191 123 314 314 Valuation of debt securities 3) 28 19 47 47 Valuation of financial derivatives hedging cash flow 4) 20 20 20 Valuation of other financial derivatives 4) 53 53 53 Net result of hedge accounting 0 0 0 Other changes 5) 5 5 5 Deferred taxes 6) –69 –56 –125 –125 Transfer of minority interest to equity 7) 17 17 Equity at 1 Jan. 2004 93 971 370 0 170 1,720 3,324 17 3,340

Equity at 31 Dec. 2004, FAS 95 1,019 370 225 1,543 3,252 3,252 Transfer of preferred capital notes to liabilities 1) –225 –225 –225 Transfer of adjustments related to the result for the year to retained earnings 32 32 32 Recognition of equalisation provision into p/l account 2) 4 4 4 Valuation of shares available-for-sale 3) 229 123 352 352

56 Sampo Group I Board of Directors’ Report and Financial Statements S share preferred fair share premium legal capital value retained minority EURm capital account reserve notes reserve earnings total interest total Valuation of AFS debt securities 3) 74 19 93 93 Valuation of financial derivatives hedging cash flow 4) 8 8 8 Valuation of other financial derivatives 4) 53 53 53 Net result of hedge accounting 0 0 0 Other changes 5) 5 5 5 Deferred taxes 6) –77 –56 –132 –132 Transfer of minority interest to equity 7) 26 26 Equity at 31 Dec. 2004, IFRS 95 1,019 370 0 233 1,723 3,440 26 3,465

Reconciliation of Profit

EURm For the year ended 31 December 2004, FAS 779 Change in equalisation provision 8) 54 Valuation of shares available-for-sale –3 Valuation of securities available-for-sale 9) –33 Valuation of financial derivatives 10) –42 Reversal of amortisation of goodwill 11) 46 Depreciation and amortisation related to allocation of business combination 12) –7 Other adjustments 13) –32 Income tax for the period 14) 51 Change in minority interest 15) 4 For the year ended 31 December 2004, IFRS 817

Effects of transition to IFRSs on the equity of the opening balance sheet for 1 Jan. 2004 and on the equity of the closing balance sheet for 31 Dec. 2004 and on the result for the financial period ended 31 Dec. 2004. 1) The preferred capital securities included in equity under Finnish accounting practice have been transferred to subordinated liabilities.

2) The equalisation provision less deferred tax has been recognised in the Group’s equity.

3) After the transition to IFRSs, the Group’s securities have been classified under IAS 39 as financial assets held for trading, financial assets designated as at fair value through profit or loss, financial assets available-for-sale and investments held- to-maturity. Securities are measured at fair value except in the case of investments held-to-maturity, which are measured at amortised cost using the effective interest rate method. The gain or loss arising from a change in the fair value of financial assets available-for-sale is recognised directly in the fair value reserve as a component of equity.

4) Derivative financial instruments are measured at fair value through p/l in compliance with IAS 39.

In banking and investment services and the holding business this causes a change in the valuation of hedging derivative financial instruments, as under previous accounting practice these instruments were measured according to the same principles as the hedged balance sheet item. The net income from the fair value hedge and the ineffective part of the cash flow hedge are recognised in the income statement, while the effective part of the cash flow hedge is recognised in the fair value reserve as a separate component in equity.

In life insurance the non-hedging derivative financial instruments were measured, in accordance with the previous national accounting practice, at the lower of cost and fair value.

5) Other changes include e.g. EUR 4.7 million in restoring unrecognised interests on non-performing loans. Under previous accounting practice, no interest was accrued on non-performing loans. Under IFRSs, interest is accrued.

6) The change in deferred tax arises from the valuation of balance sheet items at fair value through p/l in the transition to IFRSs.

7) The minority interest is presented as a separate component of equity.

8) The effect of the change in the equalisation provision. Continues, Note 1→

Sampo Group I Board of Directors’ Report and Financial Statements 57 IFRS FINANCIAL STATEMENTS: OTHER notes

9) The effect of the change in value of both shares and participations and debt securities available-for-sale.

10) The effect of the change in fair value for derivative financial instruments.

11) After the transition to IFRSs, goodwill is no longer amortised. The previous amortisations under FGAAP have been restored to the result for the financial year ended 2004.

12) In revising the reporting of the acquisition of the If Group to conform to IFRS 3, EUR 47 million was re-allocated from acquisition cost to customer intangibles. These long-term expenses will be amortised straight-line in 6 years.

13) Other changes include e.g. refunds of corporate tax credits. In Finnish accounting practice, corporate tax credits have been recognised as dividend-related income and, on the other hand, as a corporate tax asset. In calculating taxable income, corporate tax credits have been calculated as taxable income and as a deduction, which, like income tax deductions, reduces the taxes payable for the year. Under IFRSs, income and income taxes areadjusted by corporate tax credits.

14) The reduction of the Group’s taxes for the financial year results mainly from the measurement of balance sheet items at fair value and from the change in treatment of corporate tax credits.

15) The effect of IFRS adjustments on the minority interests of the result for the financial period.

Classifying assets as financial assets at fair value through p/l and financial assets available-for-sale in the opening balance sheet for 1 Jan. 2004 Financial assets and liabilites are classified according to their valuation practice. Financial assets at fair value through p/l are measured at fair value and the changes in fair value are recognised in the income statement. The changes in fair value for the financial assets available-for-sale are recognised in the fair value reserve as a separate component of equity.

Classification in FGAAP carrying fair classification EURm amount value ifrs Banking and investment services Debt securities, other held for trading 648 649 Financial assets available-for-sale Shares, financial fixed assets 20 24 Financial assets available-for-sale Life insurance Other investments, shares and participations 2 2 Financial assets designated as at fair value through Other investments, debt securities 8 8 Financial assets designated as at fair value through Investments related to unit-linked Financial assets designated contracts *) 603 603 as at fair value through Investments in group undertakings, Debt securities 151 151 Financial assets available-for-sale Other investments, shares and participations 1,647 1,898 Financial assets available-for-sale Other investments, debt securities 2,848 2,876 Financial assets available-for-sale Holding business Shares, financial fixed assets 214 274 Financial assets available-for-sale

*) Are presented in the balance sheet as a separate item.

58 Sampo Group I Board of Directors’ Report and Financial Statements 2 Business Combinations Acquisition of If Group in the year 2004 On 11 February 2004, Sampo plc agreed to acquire the 51.89 per cent of If P&C Insurance Holding Ltd’s shares held by Skan- dia and its subsidiary Skandia Liv, and by Storebrand. The transaction was completed and If became an 89.94 per cent owned subsidiary of Sampo plc on 6 May 2004. On 5 October 2004, Sampo plc acquired the shares held by Varma Mutual Pension Insurance Company. Following these transactions, Sampo plc now owns 100 per cent of If. Both acquisitions were paid in cash. The profit of If Group for April to December 2004 included in Sampo Group’s profit is EURm 369.

Specification of the cost of the business combination A acquired percentage of shares EURm First acquisition 51.89% 1,373 Second acquisition 10.06% 271 Costs allocated to acquisitions 5

Specification of net assets for the first acquisition A acquiree's EURm carrying amount fair value Assets Cash and balances at central banks 268 268 Investments 7,946 8,044 Reinsurer’s share of insurance liabilities 1,020 1,020 Intangible assets 159 122 Property, plant and equipment 36 36 Other assets 1,470 1,470 Tax assets 242 242 Total assets 11,140 11,201

Liabilities Financial liabilities at fair value through p/l 27 27 Debt securities in issue 262 319 Liabilities for insurance and investment contracts 8,070 8,070 Other liabilities 746 746 Tax liabilities 181 217 Total liabilities 9,285 9,379

Net assets 1,855 1,822

Acquired share of net assets 51.89% 945 Purchase price 1,378 Goodwill 433

Specification of net assets for the second acquisition A acquiree's EURm carrying amount fair value Assets Cash and balances at central banks 233 233 Investments 8,573 8,608 Reinsurer’s share of insurance liabilities 954 954 Intangible assets 145 122 Property, plant and equipment 33 33 Other assets 1,094 1,094 Tax assets 198 198 Total assets 11,230 11,241

Continues, Note 2→

Sampo Group I Board of Directors’ Report and Financial Statements 59 IFRS FINANCIAL STATEMENTS: OTHER notes

A acquiree's EURm carrying amount fair value Liabilities Financial liabilities at fair value through p/l 85 85 Debt securities in issue 262 315 Liabilities for insurance and investment contracts 7,991 7,991 Other liabilities 621 599 Tax liabilities 183 211 Total liabilities 9,142 9,201

Net assets 2,088 2,040

Acquired share of net assets 10.06% 205 Purchase price 271 Goodwill 66

Goodwill arising from acquisition of If Group First acquisition 433 Second acquisition 66 Total 498

Acquisition of Sampo Banka (A/S M¯aras Banka) in the year 2004 On the 17 November 2004 Sampo Bank plc acquired Sampo Banka (AS M¯aras Banka) in Latvia. The purchase price, EURm 13, was paid in cash. No other costs were allocated to the acquisition. As the acquisition was carried out at the end of the financial year, the effect of the acquisition on Sampo Group’s profit was immaterial.

Specification of net assets A acquiree's EURm carrying amount fair value Assets Cash and balances at central banks 3 3 Loans and receivables 46 46 Other assets 0 0 Total assets 49 49

Liabilities Amounts owed to credit institutions and customers 41 41 Other liabilities 1 1 Total liabilities 42 42

Net assets 7 7

Acquired share of net assets 100% 7 Purchase price 13 Goodwill 6

Sampo Group’s revenue and profit for the financial year if the acquisition date for If Group and Sampo Banka had been the beginning of the year 2004

EURm Pro forma revenue Sampo Group’s revenue for year ended 31 Dec. 2004 excl. If Group 2,104 If Group’s revenue for year ended 31 Dec. 2004 4,289 Sampo Banka’s revenue for year ended 31 Dec. 2004 3 Sampo Group’s pro forma revenue for year ended 31 Dec. 2004 6,395

Pro forma profit for the financial year Sampo Group’s profit for the financial year 2004 excl. If Group 402 If Group’s profit for the financial year 2004 471 Sampo Banka’s profit for the financial year 2004 0 Sampo Group’s pro forma profit for the financial year 2004 873

60 Sampo Group I Board of Directors’ Report and Financial Statements Disposed entities during the year 2005 In June 2005, Sampo plc signed a binding agreement to sell its subsidiaries in Poland – the pension company Sampo PTE S.A. and the life insurance company Sampo T.U. Zycie S.A. – to Nordea Life Holding A/S. The consideration is EUR 95 million, of which Sampo recognised a sales gain of EUR 24 million. Sampo has already written off most of the goodwill associated with the acquisition of the disposed entities. The figures of Sampo PTE S.A are reported in the banking and investment services segment and those of Sampo T.U. Zycie S.A. in the life insurance segment in Other operating income.

On 30 December 2005 Sampo plc sold its shareholdings in the following investment service companies to Sampo Bank plc, a wholly-owned subsidiary of Sampo plc: Mandatum Stockbrokers Ltd Mandatum & CO Ltd 3C Asset Management Ltd Arvo Value Asset Management Ltd Mandatum Asset Management Ltd Sampo Fund Management Ltd

The net assets of sold entities totalled EURm 12 which was also the sales price.

On 9 December 2004 Sampo plc sold Mandatum Private Equity Funds Ltd to Amanda Capital Ltd.

Sampo Group I Board of Directors’ Report and Financial Statements 61 IFRS FINANCIAL STATEMENTS: OTHER notes

3 Net Interest Income EURm 2005 2004 Banking and investment services Interest income Loans and receivables 659 572 Other interest income 7 12 Total 666 584

Interest expenses Amounts owed to credit institutions and customers –145 –108 Debt securities in issue –179 –148 Other interest expenses –1 –5 Total –325 –261

Banking and investment services, total 341 322 Included within interest income is EURm 1 (EURm 0) interest income accrued on impaired financial assets.

In the item is also included a change in fair value of cash flow hedging instruments EURm 11 (EURm 14), which have been transferred from the fair value reserve at the maturity of the contracts. Other business Interest income Loans and receivables 3 5 Other interest income 0 1 Total 4 5

Interest expenses Amounts owed to credit institutions and customers –6 –13 Debt securities in issue –36 –30 Other interest expenses 0 0 Total –42 –43

Other business, total –39 –38

Elimination items between segments 8 12

Group, total 310 297

Net interest income from banking and investment services, total In net interest income 341 322 In net income from financial transactions 55 52 In net income from investments –2 8 Total 394 382

Net interest income from other business, total In net interest income -39 -38 In net income from financial transactions 0 –1 In net income from investments 6 3 Total -32 -35

Interest income and expenses from P&C insurance and life insurance business are disclosed in Net income from investments.

62 Sampo Group I Board of Directors’ Report and Financial Statements 4 net Income from Financial Transactions EURm 2005 2004 Banking and investment services Trading assets/liabilities Debt securities and interest rate derivatives Interest income 23 26 Gains/losses 7 –7 Equity securities and equity derivatives Gains/losses 6 –1 Dividend income 1 12 Other Gains/losses 1 0

Financial assets designated as at fair value through p/l Debt securities Interest income 32 26 Gains/losses –13 6

Foreign exchange dealing Gains/losses 14 11

Gains/losses from hedge accounting Fair value hedging Change in fair value of hedging derivative instruments, net –20 –5 Hedging loan portfolio 2 –5 Hedging individual loans 3 –5 Hedging liabilities –24 4 Change in fair value of hedged items, net 19 6 Loan portfolio –2 5 Individual loans –3 5 Liabilities 24 –3 Total –1 1

Banking and investment services, total 69 74 Other business Other business, total 0 –5

Elimination items between segments 6 –6

Group, total 75 64

Sampo Group I Board of Directors’ Report and Financial Statements 63 IFRS FINANCIAL STATEMENTS: OTHER notes

5 fee and Commission Income and Expenses EURm 2005 2004 Banking and investment services Fee and commission income Lending 39 35 Borrowing 20 20 Payment transactions 56 57 Asset management 101 78 Guarantees 13 12 Investment banking 25 19 Other 30 28 Total 283 248

Fee and commission expenses –63 –51

Banking and investment services, total 221 197 Other business Other business, total –1 –1

Elimination items between segments –17 –17

Group total 220 178

Fee and comission income from financial assets and liabilities EURm 115 (EURm 112) and fee and commission expenses EURm 10 (EURm 8).

Fee and commission income and expenses of insurance business are included in Net income from investment.

6 Impairment Losses on Loans and Receivables EURm 2005 2004 Banking and investment services Loans and receivables Impairment losses –36 –22 Reversal of impairment losses and recoveries of loan receivables previously written off 39 33 Total 3 11 Banking and investment services, total 3 11 Other business Other business, total –2 0

Group, total 1 11

64 Sampo Group I Board of Directors’ Report and Financial Statements 7 Insurance Premiums EURm 2005 2004 P&C Insurance Premiums from insurance contracts Premiums written, direct insurance 3,886 2,392 Premiums written, assumed reinsurance 76 35 Premiums written, gross 3,962 2,427 Ceded reinsurance premiums written –244 –123 Premiums written, net 3,717 2,304 Change in unearned premium provision –23 467 Recoverable from reinsurers 15 –74 Insurance premiums earned, net 3,709 2,697

Insurance premiums include all payments from insurance and investment contracts. These are specified in tables below. EURm 2005 2004 Life Insurance Premiums from insurance contracts Premiums written, direct insurance 664 526 Premiums written, assumed reinsurance –13 –9 Insurance contracts total, gross 650 517 Premium revenue ceded to reinsurers on insurance contracts issued –5 –17 Insurance contracts total, net 645 500 Investment contracts 4 5 Net insurance premium revenue total *) 649 505

Group, total 4,358 3,202 *) The change in unearned premiums is presented in note 10

Performance analysis per class of P&C insurance F fire and accident motor, motor, marine, other third and third party other air and damage to party credit EURm health liability classes transport property liability insurance Premiums written, gross 2005 525 790 971 151 1,216 170 2 2004 160 546 694 87 764 98 3 Premiums earned, gross 2005 516 773 947 159 1,220 184 2 2004 339 541 705 115 943 138 3 Claims incurred, gross 2005 –455 –737 –607 –112 –679 –173 0 2004 –399 –478 –425 –39 –433 –96 –1 Operating expenses, gross 2005 –86 –155 –145 –37 –209 –36 0 2004 –68 –102 –114 –37 –170 –30 –1 Profit/loss from ceded reinsurance 2005 10 0 1 –18 –62 7 0 2004 11 –1 –4 –57 –88 –14 –1 Technical result before investment return 2005 –15 –119 195 –8 271 –19 2 2004 –117 –40 162 –18 252 –2 0

Sampo Group I Board of Directors’ Report and Financial Statements 65 IFRS FINANCIAL STATEMENTS: OTHER notes

T total legal direct reinsurance EURm expenses other insurance assumed elimination total Premiums written, gross 2005 16 56 3,897 57 –4 3,950*) 2004 8 31 2,392 35 0 2,427 Premiums earned, gross 2005 14 57 3,872 70 –4 3,938 2004 10 45 2,839 58 –3 2,894 Claims incurred, gros 2005 –12 –31 –2,806 –60 12 –2,853 2004 –11 –28 –1,909 7 –4 –1,907 Operating expenses, gross 2005 –4 –6 –679 –5 3 –680 2004 –3 –10 –536 –5 5 –536 Profit/loss from ceded reinsurance 2005 0 –3 –66 19 –8 –55 2004 0 –3 –156 –24 3 –178 Technical result before investment return 2005 –2 16 322 25 3 350 2004 –3 3 238 35 0 274 *) Premiums written related to sold insurance portfolios (EURm 12) has been deducted from premiums written.

Specification of premiums written in Life insurance EURm 2005 2004 Premiums from insurance contracts Premiums from contracts with discretionary participation feature 377 250 Premiums from unit-linked contracts 284 275 Premiums from other contracts 3 1 Total 664 526

Assumed reinsurance –13 –9

Premiums from investment contracts Premiums from contracts with discretionary participation feature 1 1 Premiums from unit-linked contracts 4 5 Total 4 5

Insurance and investment contracts, total 655 522

Reinsurers’ shares –5 –17

Premiums written, total 649 505

Single and regular premiums from direct insurance Regular premiums, insurance contracts 370 302 Regular premiums, investment contracts – 0 Single premiums, insurance contracts 293 224 Single premiums, investment contracts 4 5 Total 668 531

66 Sampo Group I Board of Directors’ Report and Financial Statements 8 net Income from Investments EURm 2005 2004 Banking and investment services Financial assets Investment securities held-to-maturity Debt securities Interest income 1 3 Financial assets available-for-sale Debt securities Interest income –3 5 Gains/losses 8 0 Equity securities Gains/losses 14 0 Dividend income 7 7

Other assets Investment property Gains/losses 0 0 Other 0 1 Associates 16 13

Banking and investment services, total 42 29

Included in gains/losses is a net gain of EURm 1 transferred from the fair value reserve. P&C insurance Financial assets Trading assets and derivative financial instrument Derivatives Gains/losses –7 37 Financial assets designated as at fair value through p/l Debt securities Interest income 210 166 Gains/losses 48 3 Equity securities Gains/losses 253 15 Dividend income 27 12

Loand and receivables Interest income 16 3

Financial liabilities Debt securities in issue Interest expenses from subordinated debt securities –23 –14

Other financial expenses –10 –5

Other assets Investment properties Gains/losses –1 –17 Other 8 4 Associates 0 1

Effect of discounting annuities –52 –38

Fee and commission expenses Asset management –9 –8

P&C insurance, total 460 160

Continues, Note 8→

Sampo Group I Board of Directors’ Report and Financial Statements 67 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 Net income from investments includes exchange differences Arising from insurance business 3 17 Arising from investments 3 –28 Life Insurance Financial assets Trading assets and derivative financial instrument Derivatives Gains/losses –56 24 Financial assets designated as at fair value through p/l Debt securities Interest income/expenses 2 0 Gains/losses 2 1 Equity securities Gains/losses 1 0 Dividend income 0 0 Investments related to unit-linked contracts Debt securities Gains/losses 0 0 Equity securities Gains/losses 155 47 Dividend and other income 7 5 Investment in securities held-to-maturity Debt securities Interest income 11 10 Gains/losses -7 2 Loans and receivables Interest income 3 3 Gains/losses 1 2 Financial assets available-for-sale Debt securities Interest income 96 101 Gains/losses 105 –1 Equity securities Gains/losses 193 93 Impairment losses –15 –25 Dividend and other income 80 70

Financial liabilities Debt securities in issue Interest expenses from subordinated debt securities -6 –6 Other Interest expenses –3 –4

Other assets Investment properties Gains/losses 20 15 Impairment losses –4 –3 Other 12 17 Associates 1 2

Fee and commission expenses Asset management –13 –14

Life insurance, total 586 338

68 Sampo Group I Board of Directors’ Report and Financial Statements EURm 2005 2004

Net income from investments includes exchange differences Arising from insurance business 0 1 Arising from investments –48 24

Included in gains/losses is a net gain of EURm 273 transferred from the fair value reserve. Other business Financial assets Financial assets available-for-sale Debt securities Interest income 6 3 Equity securities Gains/losses –1 99 Dividend income 6 7

Other assets Investment properties Gains/losses 6 –2 Impairment losses –7 – Other 3 5 Associates 2 51

Other business, total 15 162

Included in gains/losses is a net gain of EURm 4 transferred from the fair value reserve.

Elimination items between segments –23 –

Group, total 1,080 689

The changes in the fair value reserve are disclosed in the Statement of changes in equity on p. 18 and in note 34.

Other income and expenses comprise rental income, maintenance charges and depreciation of investment property.

P&C insurance and life insurance Income and expenses arising from derivative contracts are included entirely in net investment income. Gains/losses include profit/losses on sales of derivatives, unrealised changes in fair values and exchange differences.

In insurance business investments are managed as a whole and so all the income and expenses arising from are included in Net income from investments.

The effect of discounting annuities in P&C insurance is disclosed separately. The provision for annuities is calculated in accordance with actuarial principles taking anticipated inflation and mortality into consideration, and discounted to take the anticipated future return on investments into account. To cover the costs for upward adjustment of annuity provisions required for the gradual reversal of such discounting, an anticipated return on investments is added to annuity results.

Sampo Group I Board of Directors’ Report and Financial Statements 69 IFRS FINANCIAL STATEMENTS: OTHER notes

9 Claims Incurred 2005 2004 P p&C p&C insurance insurance EURm Gross ceded net Gross ceded net P&C Insurance P&C Insurance Claims cost attributable to current-year operations Claims paid –1,222 53 –1,169 –958 17 –941 Claims portfolio – – – 0 –16 –16 Change in provision for claims outstanding (incurred and reported losses) –658 62 –596 –307 53 –254 Change in provision for claims outstanding (incurred but not reported losses, IBNR) –738 29 –708 –442 –20 –462 Claims-adjustment costs –11 – –11 –7 0 –7 Change in claims provision for annuities –12 – –12 – – – Total claims cost attributable to current-year operations –2,640 144 –2,496 –1,714 34 –1,680

Claims costs attributable to prior-year operations Claims paid –1,019 109 –910 –698 160 –538 Annuities paid –17 – –17 –38 0 –38 Claims portfolio –159 158 –2 1 –3 –2 Change in provision for claims outstanding (incurred and reported losses) 710 –131 579 576 –204 372 Change in provision for claims outstanding (incurred but not reported losses, IBNR) 513 –124 389 143 2 145 Total claims cost attributable to prior-year operations 27 12 39 –16 –46 –62

Insurance claims paid Claims paid –2,240 162 –2,078 –1,656 177 –1,479 Annuities paid 45 – 45 31 0 31 Claims portfolio –159 158 –2 1 –19 –18 Total claims paid –2,354 319 –2,035 –1,624 158 –1,467

Change in provision for claims outstanding Change in provision for claims outstanding (incurred and reported losses) 52 –69 –16 269 –152 118 Change in provision for claims outstanding (incurred but not reported losses, IBNR) –225 –94 –319 –299 –18 –317 Change in claims provision for annuities –74 – –74 –69 0 –69 Claims-adjustment costs –12 – –12 –7 0 –7 Total change in provision for claims outstanding –259 –163 –422 –105 –170 –275

P&C insurances total claims incurred –2,613 156 –2,457 –1,730 –12 –1,742

Interest rate used in calculating the technical provisions of annuities (%) 2005 2004 Sweden 1.50 1.50 Finland 3.40 *) 3.50 Denmark 2.00 2.00

*) 2.5 per cent has been used as a discount percentage for claims in a form of annuities for 2004 and 2005. For older annuities the percentage was 3.5. The average of these two as for 31 Dec. 2005 was 3.4.

70 Sampo Group I Board of Directors’ Report and Financial Statements claims Change in provision Claims paid for claims outstanding incurred EURm 2005 2004 2005 2004 2005 2004 Life insurance Insurance contracts Life-insurance Contracts with discretionary participation feature (DPF) –126 –134 –5 0 –131 –134 Other contracts –1 0 0 0 –1 0 Unit-linked contracts –47 –44 0 0 –47 –44 Total –174 –178 –5 0 –179 –179

Pension insurance Contracts with discretionary participation feature (DPF) –220 –194 –121 –54 –341 –248 Other contracts 0 –2 13 1 12 –1 Unit-linked contracts –2 –2 0 – –2 –2 Total –222 –197 –109 –53 –331 –250

Assumed reinsurance –3 –5 0 3 –2 –2

Insurance contracts total, gross –398 –380 –114 –50 –512 –431

Reinsurers' share 12 14 –8 5 4 20

Insurance contracts total, net –386 –366 –122 –45 –508 –411

Investment contracts Capital redemption policy Contracts with discretionary participation feature (DPF) –46 –41 – – –46 –41 Unit-linked contracts –3 –12 – – –3 –12 Investment contracts, total –50 –53 – – –50 –53

Life insurances insurance and investment contracts –436 –419 –122 –45 –557 –464

Claims paid by type of benefit EURm 2005 2004 Insurance contracts Life insurance Surrender benefits –12 –16 Death benefits –27 –22 Maturity benefits –81 –90 Loss adjustment expenses 0 0 Other –6 –5 Total –127 –134

Life insurance, unit-linked Surrender benefits –18 –18 Death benefits –8 –7 Maturity benefits –20 –14 Loss adjustment expenses 0 0 Other 0 0 Total –47 –39

Continues, Note 9→

Sampo Group I Board of Directors’ Report and Financial Statements 71 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 Life insurance Pension insurance Pension payments –202 –184 Surrender benefits –13 –6 Death benefits –4 –5 Loss adjustment expenses 0 0 Other 0 - Total –220 –196

Pension insurance, unit-linked Pension payments – – Surrender benefits –1 –1 Death benefits 0 0 Loss adjustment expenses – 0 Other – 0 Total –2 –2

Assumed reinsurance –3 –5

Insurance contracts total, gross –398 –375

Reinsurers’ share 12 14

Insurance contracts total, net –386 –361

Investment contracts Capital redemption policies Surrender benefits –23 –6 Loss adjustment expenses –24 –35 Other – – Total –46 –41

Investment contracts Capital redemption policies, unit-linked Surrender benefits –1 –4 Loss adjustment expenses –2 –12 Other – – Total –3 –17

Investment contracts total, gross –50 –58

Claims paid total, gross –448 –433 Claims paid total, net –436 –419

Group, total –3,014 –2,206

72 Sampo Group I Board of Directors’ Report and Financial Statements 10 Change in Liabilities for Insurance and Investment Contracts EURm 2005 2004 Life insurance Insurance contracts Life-insurance Contracts with discretionary participation feature (DPF) 40 73 Other contracts –4 0 Unit-linked contracts –226 –185 Total –190 –111

Pension insurance Contracts with discretionary participation feature (DPF) –93 –42 Other contracts 2 0 Unit-linked contracts –159 –96 Total –250 –138

Assumed reinsurance 18 14

Insurance contracts total, gross –422 –236

Reinsurers' share –3 0

Insurance contracts total, net –425 –235

Investment contracts Capital redemption policy Contracts with discretionary participation feature (DPF) 38 39 Unit-linked contracts –3 6 Investment contracts, total 35 45

Change in liabilities for insurance and investment contracts total, gross –387 –191

Change in liabilities for insurance and investment contracts in total, net –390 –191

Sampo Group I Board of Directors’ Report and Financial Statements 73 IFRS FINANCIAL STATEMENTS: OTHER notes

11 Staff cost EURm 2005 2004 Banking and investment services Staff costs Wages and salaries –160 –146 Pension costs – defined contribution plans –23 –24 Other social security costs –18 –15 Banking and investment services, total –200 –185 P&C insurance Staff costs Wages and salaries –303 –228 Pension costst - defined contribution plans –48 –24 - defined benefit plans [note 32] –27 –27 Other social security costs –68 –50 P&C insurance, total –447 –329 Life insurance Staff costs Wages and salaries –17 –16 Pension costs - defined contribution plans –2 –2 Other social security costs –1 –1 Life insurance, total –20 –19 Other business Staff costs Wages and salaries –36 –38 Pension costs - defined contribution plans –5 –6 Other social security costs –2 –3 Other business, total –44 –46

Elimination items between segments 5 13

Group, total –706 –567

74 Sampo Group I Board of Directors’ Report and Financial Statements 12 Other Operating Expenses EURm 2005 2004 Banking and investment services IT costs –57 –59 Other staff costs –9 –11 Marketing expenses –19 –12 Postage and telephone costs –10 –11 Depreciation and amortisation –40 –43 Rental expenses –26 –28 Other –58 –54 Banking and investment services, total -220 -218 P&C insurance IT costs –63 –45 Other staff costs –20 –21 Marketing expenses –49 –33 Depreciation and amortisation –20 –28 Rental expenses –46 –33 Change in deferred acquisition costs –9 –24 Credit loss on outstanding premiums –1 –8 Direct insurance comissions –116 –96 Commissions on reinsurance ceded 18 29 Other –178 –114 P&C insurance, total –484 –375 Life insurance IT costs –8 –8 Other staff costs –1 –1 Marketing expenses –2 –1 Depreciation and amortisation –2 –3 Rental expenses –1 0 Direct insurance comissions –16 –15 Comissions of reinsurance assumed –2 –1 Commissions on reinsurance ceded 1 2 Other –7 –3 Life insurance, total –37 –29 Other business IT costs –24 –46 Other staff costs –1 –1 Marketing expenses –1 0 Depreciation and amortisation –8 6 Impairment losses on intangible assets and property, plant and equipment – –9 Rental expenses –6 –8 Other –15 –24 Other business, total –55 –83

Elimination items between segments 100 88

Group, total –695 –617

Sampo Group I Board of Directors’ Report and Financial Statements 75 IFRS FINANCIAL STATEMENTS: OTHER notes

13 Earning per Share EURm 2005 2004 Basic earnings per share Profit or loss attributable to the equity holders of the parent company/continuing operations 949 824 Profit or loss attributable to the equity holders of the parent company/discontinuing operations 0 –7 Weighted average number of shares outstanding during the period 565 558 Basic earnings per share (EUR per share)/continuing operations 1.68 1.48 Basic earnings per share (EUR per share)/discontinuing operations 0 –0,01

Diluted earnings per share Profit or loss attributable to the equity holders of the parent company/continuing operations 949 824 Profit or loss attributable to the equity holders of the parent company/discontinuing operations 0 –7 Profit or loss for the purpose of calculating diluted earning per share 949 817 Weighted average number of shares outstanding during the period 565 558 Dilutive effect of options 1) 10 8 Weighted average number of shares outstanding during the period for the purpose of calculating diluted earning per share 575 566 Diluted earnings per share (EUR per share)/continuing operations 1.65 1.45 Diluted earnings (EUR per share)/discontinuing operations 0 –0.01

1) In calculating the diluted earnings per share, option rights, which have not been exchanged to shares during the year but have exercice price lower than the average market price of the ordinary share, have been taken account. The diluting effect is the number of shares, that would be issued without consideration. The fair value of the ordinary share is determined as the average market (closing) price of the shares during the period, being EUR 11.97 (EUR 8.72) in 2005. No dilutive effect arises from the 1998 bond with warrants (3 million shares in 2004). For 2000 option programme the dilutive effect is 10 million shares (5 million shares). More detailed information on option schemes by Sampo Group is disclosed in Note 34.

76 Sampo Group I Board of Directors’ Report and Financial Statements 14 Financial Assets and Liabilities Financial assets and liabilities have been categorised in accordance with IAS 39.9. In the table are also included interest income and expenses, realised and unrealised gains and losses, impairment losses and dividend income arising from those assets and liabilities 2005 C carrying interest Gains/ impairment divided EURm amount inc./exp. losses losses income Financial Assets Financial assets at fair value through p/l Trading assets and derivative financial instruments 1,896 23 –41 – – Financial assets designated as at fair value through p/l 11,491 256 400 – 27

Investment securities held-to-maturity 62 12 –7 – –

Loans and receivables 20,628 670 2 2 –

Financial assets available-for-sale 5,378 88 276 1 93

Financial assets, total 39,456 1,049 630 3 121 Financial Liabilities Financial liabilities at fair value through p/l Trading liabilities and derivative financial instruments 649 –

Other financial liabilities 21,928 396

Financial liabilities, total 22,576 396

2004 C carrying interest/ Gains/ impairment divided EURm amount inc./exp losses losses income Financial Assets Financial assets at fair value through p/l Trading assets and derivative financial instruments 2,179 24 –31 – 14 Financial assets designated as at fair value through p/l 10,004 196 129 – 7

Investment securities held-to-maturity 140 13 2 – –

Loans and receivables 17,091 576 2 – –

Financial assets available-for-sale 4,783 99 182 – 77

Financial assets total 34,198 907 284 – 98 Financial Liabilities Financial liabilities at fair value through p/l Trading liabilities and derivative financial instruments 589 –

Other financial liabilities 19,037 331

Financial liabilities total 19,626 331

Sampo Group I Board of Directors’ Report and Financial Statements 77 IFRS FINANCIAL STATEMENTS: OTHER notes

15 Fair Values 2005 2004 F fair carrying fair carrying EURm value value value value Financial assets Cash and balances at central banks 1,665 1,665 1,166 1,166 Financial assets at fair value through p/l 2,537 2,537 2,727 2,727 Loans and receivables 19,009 18,918 15,954 15,869 Investments 15,037 15,037 13,524 13,519 Investments related to unit-linked contracts 1,262 1,262 882 882 Other assets 37 37 34 34 Total financial assets 39,546 39,456 34,287 34,198 Financial liablities Financial liabilities at fair value through p/l 649 649 589 589 Amounts owed to credit institutions and customers 12,203 12,260 10,946 11,037 Debt securities in issue 9,666 9,647 7,956 7,953 Other liabilities 20 20 47 47 Total financial liabilities 22,538 22,576 19,538 19,626

In the table above are presented fair values and carrying amounts of financial assets and liabilities, including values of those financial assets and liabilities which are carried at fair value. The detailed measurement bases of financial assets and liabilities are disclosed in the Accounting policies.

The fair value of trading and investment securities is assessed using quoted prices in active markets. If published price quotations are not available, the fair value is assessed using discounting method. Values for the discount rates are taken from the market’s yield curve. The private equity funds are carried at cost during the first for operating years and funds of funds during the first five operating years, following the funds’ foundation, unless they cannot be assessed to be permanently impaired.

The fair value of the derivative instruments is assessed using quoted market prices in active markets, discounting method or option pricing models.

The fair value of loans and other financial instruments which have no quoted price in active markets is based discounted cash flows, using quoted market rates. The market’s yield curve is adjusted by other components of the instrument, f.ex. by credit risk.

The fair value of loans and deposits with no stated maturity, including non-interest-bearing deposits and other short-term receivables and payables, is the amount repayable on demand.

78 Sampo Group I Board of Directors’ Report and Financial Statements 16 Cash and Balances at Central Banks EURm 2005 2004 Banking and investment services Cash 37 35 Balances with central banks 1,253 886 Banking and investment services, total 1,290 921 P&C insurance Cash at bank and in hand 248 173 Short term deposits (max 3 months) 117 96 P&C insurance, total 366 269 Life insurance Cash at bank and in hand 37 5 Short term deposits (max 3 months) 174 174 Life insurance, total 211 179

Elimination items between segments –201 –206

Group, total 1,665 1,163

Sampo Group I Board of Directors’ Report and Financial Statements 79 IFRS FINANCIAL STATEMENTS: OTHER notes

17 Financial Assets and Liabilities at Fair Value Through p/l 2005 2004 EURm assets liabilities assets liabilities Banking and investment services Assets/liabilities held for trading 1,255 – 1,501 106 Derivative financial instruments 506 464 491 345 Financial assets designated as at fair value through p/l 648 – 546 – Banking and investment services, total 2,409 464 2,538 451 P&C insurance Derivative financial instruments 87 149 176 129 Life insurance Derivative financial instruments 46 36 38 9 Other business Assets/liabilities held for trading 1 – 0 – Derivative financial instruments 2 – 4 0 Other business, total 3 – 5 0

Elimination items between segments –8 – –5 –

Group, total 2,537 649 2,751 589

Financial assets designated as at fair value through p/l of insurance business are included in Investments.

EURm 2005 2004 Banking and investment services Assets Held for Trading Debt securities Treasury bills and other eligible bills 902 1,138 Other debt securities 340 363 - Issued by public bodies 94 46 Government bonds 21 37 Other 73 10 - Certificates of deposit issued by banks 165 88 - Other debt securities 81 228 Total debt securities 1,242 1,501 Exchange traded debt securities EURm 160 (EURm 516). Equity securities - listed 11 0 - unlisted 2 0 Total equity securities 13 0

Total assets held for trading 1,255 1,501 Trading securities pledged as colleteral securities are disclosed in note 33.

Liabilities Held for Trading Short selling – 106 - Debt securities – 106 Total liabilities held for trading – 106

80 Sampo Group I Board of Directors’ Report and Financial Statements 2005 2004 contract/ Fair value contract/ Fair value notional notional EURm amount assets liabilities amount assets liabilities Derivative Financial Instruments Derivatives held for trading Interest rate derivatives OTC derivatives Interest rate swaps 12,898 63 86 12,484 70 98 Cross-currency interest rate swaps 64 7 0 164 9 2 Forward rate agreements 512 0 0 1,203 1 1 Interest rate options, bought and sold 15,687 102 101 9,179 21 19 Total OTC derivatives 29,161 171 188 23,030 101 120

Exchange traded derivatives Interest rate futures 582 0 0 518 1 0 Interest rate options, bought and sold 10,388 2 2 3,520 1 1 Total exchange traded derivatives 10,970 3 2 4,038 1 1 Total interest rate derivatives 40,131 174 190 27,068 102 121

Foreign exchange derivatives OTC derivatives Currency forwards 8,249 94 112 9,219 178 137 Currency options, bought and sold 234 4 3 543 2 2 Total OTC derivatives 8,484 98 115 9,762 180 140 Total foreign exchange derivatives 8,484 98 115 9,762 180 140

Equity derivatives OTC derivatives OTC equity and equity index options 7 2 2 – – – Total OTC derivatives 7 2 2 – – –

Exchange traded derivatives Equity futures 1 1 1 – – – Equity and equity index options – – – 0 0 0 Equity index futures – – – 14 0 0 Total exchange trade derivatives 1 1 1 14 0 0 Total equity derivatives 8 3 3 14 0 0

Commodity derivatives OTC derivatives Commodity forwards 354 19 20 156 6 6 Total OTC derivatives 354 19 20 156 6 6

Exchange traded derivatives Commodity futures 28 2 – 3 0 – Total exchange traded derivatives 28 2 0 3 0 0 Total commodity derivatives 382 21 20 159 6 6

Total derivatives held for trading 49,004 295 327 37,003 289 266

Continues, Note 17→

Sampo Group I Board of Directors’ Report and Financial Statements 81 IFRS FINANCIAL STATEMENTS: OTHER notes

2005 2004 contract/ Fair value contract/ Fair value notional notional EURm amount assets liabilities amount assets liabilities Derivatives held for hedging Derivatives designated as fair value hedges Interest rate derivatives Interest rate swaps 2,417 12 49 1,298 27 13 Cross-currency interest rate swaps 844 146 33 687 161 38 Total interest rate derivatives 3,261 158 83 1,985 188 51

Foreign exchange derivatives Currency options, bought and sold 275 0 2 – – –

Equity derivatives Equity and equity index derivatives, bought and sold 448 53 52 468 8 28 Total derivatives designated as fair value hedges 3,984 210 136 2,454 195 79

Derivatives designated as cash flow hedges Interest rate derivatives Interest rate swaps 170 1 – 421 8 – Total derivatives designated as as cash flow hedges 170 1 – 421 8 –

Total derivatives held for hedging 4,154 211 136 2,874 203 79

Total derivative contracts 53,157 506 464 39,877 491 345

Financial Assets Designated as at Fair Value Through p/l EURm 2005 2004 Debt securities Treasury bills and other eligible bills 648 546 Total debt securities 648 546 Exchange traded debt securities EURm 648 (EURm 546).

82 Sampo Group I Board of Directors’ Report and Financial Statements 2005 2004 contract/ Fair value contract/ Fair value notional notional EURm amount assets liabilities amount assets liabilities P&C insurance Derivative Financial Instruments Derivatives held for trading Exchange traded derivatives Interest rate futures 0 0 5 1,944 – 16 Total exchange traded derivatives 0 0 5 1,944 – 16 Total interest rate derivatives 0 0 5 1,944 – 16

Foreign exchange derivatives OTC derivatives Currency forwards 4,562 80 144 10,788 175 112 Total OTC derivatives 4,562 80 144 10,788 175 112 Total foreign exchange derivatives 4,562 80 144 10,788 175 112

Equity derivatives Exchange traded derivatives Equity and equity index options 4 6 – 132 1 – Total exchange traded derivatives 4 6 – 132 1 – Total equity derivatives 4 6 – 132 1 –

Total derivatives held for trading 4,566 87 149 12,864 176 129 Life insurance Derivatives held for trading Interest rate derivatives OTC derivatives Interest rate swaps 90 0 – 89 0 – Total OTC derivatives 90 0 – 89 0 –

Exchange traded derivatives Interest rate futures 181 – 1 390 1 1 Interest rate options, bought and sold 3,715 36 24 220 0 0 Total exchange traded derivatives 3,896 36 25 610 1 2 Total interest rate derivatives 3,986 36 25 699 1 2

Foreign exchange derivatives OTC derivatives Currency forwards 440 3 3 550 17 1 Currency options, bought and sold 618 4 4 467 9 6 Total OTC derivatives 1,057 7 8 1,017 26 7 Total foreign exchange derivatives 1,057 7 8 1,017 26 7

Equity derivatives OTC derivatives OTC equity and equity index options 5 – 3 – – – Total OTC derivatives 5 – 3 – – –

Exchange traded derivatives Equity and equity index options 15 2 – – – – Total exchange trade derivatives 15 2 – – – – Total equity derivatives 20 2 3 – – –

Continues, Note 17→

Sampo Group I Board of Directors’ Report and Financial Statements 83 IFRS FINANCIAL STATEMENTS: OTHER notes

2005 2004 contract/ Fair value contract/ Fair value notional notional EURm amount assets liabilities amount assets liabilities Commodity derivatives OTC derivatives Commodity swaps 20 0 0 60 1 1 Total OTC derivatives 20 0 0 60 1 1

Exchange traded derivatives Commodity futures 11 1 – – – – Total exchange traded derivatives 11 1 – – – – Total commodity derivatives 31 1 0 60 1 1

Total derivatives held for trading 5,094 46 36 1,776 28 9

Derivatives held for hedging Derivatives designated as fair value hedges Foreign exchange derivatives Currency options, bought and sold – – – 160 10 – Total derivatives designated as fair value hedges – – – 160 10 –

Total derivatives held for hedging – – – 160 10 –

Total derivative contracts 5,094 46 36 1,935 38 9

EURm 2005 2004 Other business Assets Held for Trading Equity securities – 0 Debt securities 1 – Total assets held for trading 1 0

2005 2004 contract/ Fair value contract/ Fair value notional notional EURm amount assets liabilities amount assets liabilities Derivative Financial Instruments Derivatives held for hedging Derivatives designated as fair value hedges Interest rate derivatives Interest rate swaps 633 2 – 640 4 0

Total derivative contracts 633 2 – 640 4 0

The Group uses derivative instruments for trading and for hedging purposes. The derivatives used are foreign exchange, interest rate, equity and commodity derivatives. Derivatives held for trading relate primarily to customer business and, to a lesser degree to proprietary trading. In Banking and investment services derivatives held for hedging purposes are used for hedging loans, liabilities and future cash flows. In insurance business derivatives are used for hedging interest rate risk and foreign exchange risk, but hedge accounting is not applied.

In Banking and investment services, interest rate and interest rate and cross currency interest rate swaps as well as FRAs are designated as fair value hedges, using them as hedges against the changes in market interest rates. Also different kinds of index-linked options, which are used as hedges against changes in fair values of corresponding written index- linked options due to changes in market conditions, are designated as fair value hedges. These index-linked derivatives may be based on interest rate, equity or foreign exchange indices. Interest rate swaps are used as cash flow hedges against decrease in future interest payments of floating rate loans. In these swaps the Group pays floating interest rate and receives fixed interest rate.

84 Sampo Group I Board of Directors’ Report and Financial Statements 18 loans and Receivables EURm 2005 2004 Banking and investment services Loans and advances to credit institutions By type of loan - Deposits 119 109 - Reverse repos – 81 - Other loans 310 236 Total 428 425

Loans and advances to customers By type of loan Home loans 8,158 6 227 Consumer loans 1,103 934 Other retail loans 1,111 963 Finance lease assets 1) 766 650 Money market loans 15 223 Reverse repos 0 0 Other commercial loans 7,348 6,426 Allowance for impairmentt 2) –18 –15 Total 18,483 15,409

Banking and investment services, total 18,911 15,835 Other business Other business loans and receivables, total 62 95

Elimination items between segments –55 –61

Group, total 18,918 15,869

Loans and receivables of insurance business are included in Investments, note 19.

1) Finance lease assets included in loans EURm 2005 2004 Maturities for finance lease assets not later than one year 227 258 later than one year and not later than five years 505 372 later than five years 132 89 Gross investments in the finance lease 863 719

Present value of minimum lease payments receivable not later than one year 197 238 later than one year and not later than five years 452 335 later than five years 117 77

Unearned finance income 97 69

Gross investments in the finance leasen 863 719

Accumulated impairment losses 1 0

Finance lease assets comprise IT and office automation equipment, cars and transport equipment, manufacturing equipment and factory, office and business property.

2) Movements in allowance account EURm 2005 Balance at beginning of year 15 + New allowances 12 - Reversals and write-offs –9 Balance at end of year 18

Sampo Group I Board of Directors’ Report and Financial Statements 85 IFRS FINANCIAL STATEMENTS: OTHER notes

19 investments EURm 2005 2004 Banking and investment services Investments held-to-maturity 46 28 Financial assets available-for-sale 14 18 Investment property 1 1 Investments in associates (Note 20) 14 30 Banking and investment services, total 74 78 P&C insurance Financial assets designated as at fair value through p/l 9,535 8,559 Loans and receivables 3 2 Investment property 84 122 Investments in associates (Note 20) 4 4 P&C insurance, total 9,625 8,687 Life insurance Financial assets designated as at fair value through p/lt 53 14 Investments held-to-maturity 16 112 Loans and receivables 5 20 Financial assets available-for-sale 5,501 4,867 Investment property 130 260 Investments in associates (Note 20) 1 3 Life insurance, total 5,707 5,275 Other business Financial assets available-for-sale 183 155 Investment property 21 54 Investments in associates (Note 20) 21 21 Investments in subsidiaries 3,149 3,310 Other business, total 3,374 3,540

Elimination items between segments –3,468 –3,599

Group, total 15,313 13,981 Of which: Financial assets 15,037 13,519 Other assets 276 461 Total 15,313 13,981

Group investments comprise investments in financial assets, property and associates. Investment activities have been con- centrated on Group insurance companies. In P&C insurance business financial investments have been designated on initial recognition as financial assets at fair value through profit or loss. In Life insurance financial investments have been designated primarily as financial assets available for sale.

EURm 2005 2004 Banking and investment services Financial assets Investments held-to-maturity Treasury bills and other eligible bills 2 2 Other debt securities 44 26 - Issued by public bodies 44 25 Government bonds 44 25 - Other debt securities – 1 Total debt securities 46 28 Exchange traded debt securities EURm 46 (EURm 25)).

Total securities held-to-maturity 46 28

86 Sampo Group I Board of Directors’ Report and Financial Statements EURm 2005 2004 Financial assets available-for-sale Debt securities Treasury bills and other eligible bills – – Other debt securities – 2 - Issued by public bodies – 2 Government bonds – 2 Total debt securities – 2

Equity securities - listed – 1 - unlisted 14 14 Total 14 16

Total securities available-for-sale 14 18

Total investment securities 59 46

Investment property 1 1

Investments in associates 14 30

Banking and investment services, total 74 78

P&C insurance Financial assets Financial assets designated as at fair value through p/l Debt securities - Government bonds 2,449 2,329 - Other debt securities 6,060 5,268 Total debt securities 8,509 7,597 Listed debt securities EURm 8,509 (EURm 6,757) Equity securities - listed 1,022 916 - unlisted 4 47 Total 1,026 962

Total financial assets designated as at fair value through p/l 9,535 8,559

Loans and receivables Deposits with ceding undertakings 3 2

Total investment securities 9,538 8,562

Continues, Note 19→

Sampo Group I Board of Directors’ Report and Financial Statements 87 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 Investment property At 1 January Cost 141 186 Accumulated depreciation –1 0 Accumulated impairment losses –18 – Net carrying amount at 1 Jan. 122 185

Opening net carrying amount 122 185 Additions resulting from subsequent expenditure recognised as an asset 0 Disposals –37 –46 Depreciations –1 –1 Impairment losses –2 –18 Reversal of impairment losses 3 2 Exchange rate changes 0 –1 Closing net carrying amount 84 122

At 31 December Cost 103 141 Accumulated depreciation –2 –1 Accumulated impairment losses –17 –18 Net carrying amount at 31 Dec. 84 122

Rental income from investment property 6 5

Non-cancellable minimum rental - not later than one year 3 4 - later than one year and not later than five years 3 5 - later than five years – 0 Total 5 9

Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period –2 –2 - direct operating expenses arising from investment property not generating rental income during the period 0 0 Total –2 –2

Fair value of investment property at 31 December 84 122

Investments in associates 4 4

P&C insurance, total 9,625 8,687

Life insurance Financial assets Financial assets designated as at fair value through p/l Debt securities Issued by public bodies 12 7 Government bonds 8 6 Other 4 1 Certificates of deposit issued by banks 4 2 Other debt securities 32 2 Total debt securities 49 11 Listed debt securities EURm 16 (EURm 10)

88 Sampo Group I Board of Directors’ Report and Financial Statements EURm 2005 2004 Equity securities - listed 4 1 - unlisted 1 2 Total 5 3

Total financial assets designated as at fair value through p/l 53 14

Investments held-to-maturity Debt securities Issued by public bodies – 96 Other than government bonds – 96 Other debt securities 16 16 Total debt securities 16 112 Listed debt securities EURm 9 (EURm 104)

Total securities held-to-maturity 16 112

Loans and receivables Deposits 3 4 Deposits with ceding undertakings 2 16 Loans 0 0 Total loans and receivables 5 20

Financial assets available-for-sale Debt securities Issued by public bodies 1,539 1,398 Government bonds 1,514 1,398 Other 25 – Certificates of deposit issued by banks 1,132 743 Other debt securities 560 648 Total debt securities 3,230 2,789 Listed debt securities EURm 3,207 (EURm 2,758) Equity securities - listed 1,698 1,687 - unlisted 572 391 Total 2 ,270 2,078

Total securities available-for-sale 5,501 4,867

Total investment securities 5,576 5,013 Investment property At 1 January Cost 335 374 Accumulated depreciation –53 –48 Accumulated impairment losses –22 –23 Net carrying amount at 1 Jan. 260 303

Opening net carrying amount 260 303 Additions 1 7 Disposals –123 –41 Depreciations –4 –6 Impairment losses –4 –3 Closing net carrying amount 130 260

Continues, Note 19→

Sampo Group I Board of Directors’ Report and Financial Statements 89 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 At 31 December Cost 179 335 Accumulated depreciation –31 –53 Accumulated impairment losses –18 –22 Net carrying amount at 31 Dec. 130 260

Rental income from investment property 25 32

Non-cancellable minimum rental - not later than one year 11 23 - later than one year and not later than five years 21 53 - later than five years 2 14 Total 35 91

Total rental recognised as income during the financial period 0 0

Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period –7 9 - direct operating expenses arising from investment property not generating rental income during the period 0 0 Total –8 –9

Fair value of investment property at 31 December 146 288

Investments in associates 1 3

Life insurance, total 5,707 5,275

Financial assets designated as at fair value through profit or loss: During the year Life insurance bought a loan of EURm 30 with an embedded derivative. The interest on the loan is linked to the Dow Jones Investment Grade credit index. In addition, financial investments of EURm 22 of the Baltic companies have been designated as at fair value through profit or loss.

Financial investments held-to-maturity: A zero-coupon loan of EURm 99 matured during the year.

Financial assets available-for-sale: The amount of bonds with corporate risk included in the interest rate portfolio has decreased by EURm 320 during the year EURm 2005 2004 Other business Financial assets Financial assets available-for-sale Debt securities Treasury bills and other eligible bills – – Other debt securitiest 132 99 Total debt securities 132 99

All debt securities are listed

Equity securities - listed 3 1 - unlisted 48 55 Total 51 55

Total securities available-for-sale 183 155

Total investment securities 183 155

90 Sampo Group I Board of Directors’ Report and Financial Statements EURm 2005 2004 Investment property At 1 January Cost 74 143 Accumulated depreciation –1 0 Accumulated impairment losses –17 21 Net carrying amount at 1 Jan. 56 122

Opening net carrying amount 56 –122 Additions resulting from subsequent expenditure recognised as an asset 1 1 Disposals –34 –72 Depreciations 0 –1 Impairment losses –7 – Reversal of impairment losses 5 4 Transfers between items - From investment property to owner-occupied property 0 0 Closing net carrying amount 21 54

At 31 December Cost 41 72 Accumulated depreciation –1 –1 Accumulated impairment losses –18 16 Net carrying amount at 31 Dec. 21 54

Rental income from investment property 5 8

Non-cancellable minimum rental - not later than one year 1 5 - later than one year and not later than five years 2 2 - later than five years 1 1 Total 4 9

Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period 1 2 - direct operating expenses arising from investment property not generating rental income during the period 0 0 Total 1 3

Fair value of investment property at 31 December 21 52

Investments in associates 21 21

Investments in subsidiaries 3,149 3,310

Other business, total 3,374 3,540

The premises in investment property are leased on market-based, irrevocable contracts. The lengths of the contracts vary from those for the time being to those for several years.

Sampo Group I Board of Directors’ Report and Financial Statements 91 IFRS FINANCIAL STATEMENTS: OTHER notes

20 investments in Associates EURm 2005 2004 At beginning of year 57 809 Share of loss/profit 19 15 Additions 3 2 Disposals –41 –769 At end of year 39 57

Associates that have been accounted for by the equity method at 31 Dec. 2005

EURm Carrying fair % interest assets/ profit/ Name amount value *) held liabilities revenue loss Amanda Capital Oyj 16 23 45.41 42/0 13 5 MB Equity Fund Ky 1 – 32.52 3/– 8 6 MB Equity Fund II Ky 3 – 18.03 20/1 42 40 Henkivakuutusosakeyhtiö Retro 2 – 24.21 23/19 2 0 Autovahinkokeskus Oy 1 – 35.54 5/2 0 0 Netwheels Oy 1 – 20.06 2/0 2 1 Vahinkopalvelu Oy 0 – 20.00 0/2 6 0 Automatia Pankkiautomaatit Oy 5 – 33.33 353/320 66 3

Ohter associates at 31 Dec. 2005 Consulting AB Lennemark & Andersson 7/5 9 1 Tapio Technologies Oy 2/1 1 0 Euro-Alarm A/S 2/1 9 0

Consulting AB Lennermark & Andersson, Tapio Technologies Oy and Euro-Alarm A/S have been excluded from accounting for by the equity method because of their immaterial effect on consolidated figures.

Associates accounted for by the equity method at 31 Dec. 2004

EURm Carrying fair % interest assets/ profit/ Name amount value *) held liabilities revenue loss Amanda Capital Oyj 16 18 45.41 42/0 13 5 MB Equity Fund Ky 2 – 32.52 6/– 17 13 MB Equity Fund II Ky 5 – 18.03 28/0 39 39 Henkivakuutusosakeyhtiö Retro 2 – 24.21 23/19 2 0 Autovahinkokeskus Oy 1 – 35.54 5/2 3 0 Netwheels Oy 0 – 20.06 3/0 2 0 Vahinkopalvelu Oy 0 – 20.00 4/2 6 0 Automatia Pankkiautomaatit Oy 5 – 33.33 349/310 70 5 Toimiraha Oy 2 – 33.33 12/0 2 7

Associates not accounted for by the equity method at 31 Dec. 2004 Consulting AB Lennemark & Andersson 5/2 1 0 Tapio Technologies Oy 2/1 1 0 Euro-Alarm A/S 2/1 8 0

*) If there exists a published price quatation.

92 Sampo Group I Board of Directors’ Report and Financial Statements 21 investments Related to Unit-linked Contracts EURm 2005 2004 Life insurance Financial assets designated as at fair value through p/l Debt securities Issued by public bodies 5 12 Government bonds 5 12 Other – 0 Certificates of deposit issued by banks 6 – Other debt securities – 2 Total 12 14 Listed debt securities EURm 12 (EURm 12) Equity securities - listed 1,238 864 - unlisted 12 4 Total 1,251 868

Total financial assets designated at fair value through p/l 1,262 881

Other 0 1

Investment related to unit-linked contracts, total 1,262 882

Added: Other assets 0 1 Deducted: Other liabilities – –

Insurance liabilities related to unit-linked contracts 1,262 884

Other assets and other liabilities are due to differences in cash flows.

The historical cost of the equity securities related to unit-linked contracts was EURm 1,085 (EURm 868) and that of the debt securities EURm 7 (EURm 14).

Sampo Group I Board of Directors’ Report and Financial Statements 93 IFRS FINANCIAL STATEMENTS: OTHER notes

22 intangible Assets O other I intangible EURm Goodwill assets total Banking and investment services At 1 January Cost 72 134 206 Accumulated amortisation – –60 –60 Net carrying amount 72 74 145

Opening net carrying amount 72 74 145 Additions – 64 64 Disposals –66 –18 –84 Amortisation charge – –55 –55 Other changes – –4 – Closing net carrying amount 5 61 66

At 31 December Cost 5 180 185 Accumulated amortisation – –115 –115 Other changes – –4 –4 Net carrying amount at 31 Dec 5 61 66

Banking and investment services, total 66

O other C customer intangible EURm Goodwill relations assets total P&C insurance At 1 January Cost 549 47 110 706 Accumulated amortisation – – –83 –83 Net carrying amount 549 47 28 623

Opening net carrying amount 549 47 28 623 Exchange rate differences –15 – 0 –15 Additions – – 1 1 Disposals – – 0 0 Amortisation charge – –9 –6 –15 Closing net carrying amount 533 38 23 595

At 31 December Cost 533 47 112 692 Accumulated amortisation – –9 –89 –98 Net carrying amount at 31 Dec 533 38 23 595

P&C insurance, total 595

The intangible asset allocated to customer relations arouse from acquisition of If, when one part of the acquisition cost was allocated to insurance contracts of If Group. The item is amortised on a straight-line basis over 6 years.

Other intangible assets comprise mainly IT software used in Finland (EURm 19). The remaining amortising period is around 5 years.

94 Sampo Group I Board of Directors’ Report and Financial Statements O other intangible EURm Goodwill assets total Life insurance At 1 January Cost 153 15 168 Accumulated amortisation – –12 –12 Accumulated impairment – – – Net carrying amount 153 3 156

Opening net carrying amount 153 3 156 Additions – 2 2 Disposals – 0 0 Amortisation charge – –1 –1 Closing net carrying amount 153 4 157

At 31 December Cost 153 18 171 Accumulated amortisation – –14 –14 Accumulated impairment losses – – – Net carrying amount at 31 Dec. 153 4 157

Life insurance, total 157

O other intangible EURm assets Other business At 1 January Cost 39 Accumulated amortisation –6 Accumulated impairment –9 Net carrying amount 24

Opening net carrying amount 24 Additions 8 Disposals 0 Amortisation charge –6 Closing net carrying amount 26

At 31 December Cost 47 Accumulated amortisation –12 Accumulated impairment losses –9 Net carrying amount at 31 Dec. 26

Other business, total 26

Group, total 843

Goodwill is tested for impairment in accordance with IAS 36 Impairment of assets. No impairment losses were recognised based on these tests.

Other intangible assets comprise mainly IT software.

Sampo Group I Board of Directors’ Report and Financial Statements 95 IFRS FINANCIAL STATEMENTS: OTHER notes

23 property, Plant and Equipment L land and EURm buildings equipment total Banking and investment services At 1 January Cost 11 51 62 Accumulated depreciatio –1 –27 –28 Net carrying amount 10 24 34

Opening net carrying amount 10 24 34 Additions 0 26 26 Disposals 0 –3 –3 Impairment losses recognised 0 0 0 Depreciations 0 –26 –26 Closing net carrying amount 10 22 31

At 31 December Cost 11 74 86 Accumulated depreciation –1 –53 –54 Accumulated impairment losses 0 0 0 Net carrying amount 10 22 31

Assets provided under operating leases 50

Banking and investment services, total 82

EURm equipment P&C insurance At 1 January Cost 89 Accumulated depreciation –55 Net carrying amount 33

Opening net carrying amount 33 Additions 10 Disposals –1 Depreciations –13 Exchange rate differences 0 Closing net carrying amount 29

At 31 December Cost 97 Accumulated depreciation –68 Net carrying amount 29

P&C insurance, total 29

96 Sampo Group I Board of Directors’ Report and Financial Statements L land and EURm buildings equipment total Life insurance At 1 January Cost 20 5 25 Accumulated depreciation –2 –3 –5 Accumulated impairment losses – – – Net carrying amount 18 2 20

Opening net carrying amount 18 2 20 Additions – 0 0 Disposals –14 0 –14 Impairment losses recognised – 0 0 Depreciations 0 –1 –1 Closing net carrying amount 4 1 5

At 31 December Cost 6 5 6 Accumulated depreciation –2 –4 –2 Accumulated impairment losses – – – Net carrying amount 4 1 5

Life insurance, total 5

Other business At 1 January Cost 21 12 33 Accumulated depreciation –1 –5 –6 Accumulated impairment losses –1 – –1 Net carrying amount 19 6 25

Opening net carrying amount 19 6 25 Additions 0 0 0 Disposals –6 –1 –6 Transfers between items -From owner-occupied properties to investment properties 0 – 0 Impairment losses reversed 1 – 1 Depreciations 0 – 0 Closing net carrying amount 14 5 19

At 31 December Cost 15 11 26 Accumulated depreciation –1 –5 –7 Accumulated impairment losses –1 – –1 Net carrying amount 14 5 19

Other business, total 19

Group, total 135

Equipment comprise IT equipment and furniture.

Sampo Group I Board of Directors’ Report and Financial Statements 97 IFRS FINANCIAL STATEMENTS: OTHER notes

24 other Assets EURm 2005 2004 Banking and investment services Other assets Interests 186 158 Items in transit 1 5 Other 157 117 Total 344 280

Banking and investment services, total 344 280 P&C insurance Other assets Interests 114 97 Arising from direct insurance operations 747 655 Arising from reinsurance operations 34 91 Settlement receivables 12 – Deferred acquisition costs 97 112 Assets related to Patient Insurance Pool 52 49 Other 48 67 Total 1,104 1,072

P&C insurance, total 1,104 1,072 Life insurance Other assets Interests 39 42 From policyholders 7 6 Arising from reinsurance operations 1 2 Settlement receivables 24 10 Other 21 24 Total 92 84

Life insurance, total 92 84 Other business Other assets Interests 23 35 Items in transit – – Other 85 48 Total 108 83

Other business, total 108 83

Elimination items between segments –67 –46

Group, total 1,581 1,472

98 Sampo Group I Board of Directors’ Report and Financial Statements 25 deferred Tax Assets and Liabilities Changes in deferred tax during the financial period 2005 R recognised recognised exchange in p/l in rate EURm Jan. 2005 account equity differences 31 Dec. 2005 Deferred tax assets Confirmed losses 17 –14 –1 2 Changes in fair values 4 –2 1 Pension obligations 24 –1 –1 23 Other deductible temporary differences 177 –25 –1 –5 147 Total deferred tax assets 222 –39 –3 –6 173

Deferred tax assets in balance sheet 173

Deferred tax liabilities Depreciation differences and untexed reserves 189 75 3 266 Changes in fair values 149 14 58 –1 220 Other taxable temporary differences 24 12 5 0 42 Total deferred tax liabilities 362 101 63 2 528

Other tax liabilities 17

Deferred tax liabilities in balance sheet 545

Changes in deferred tax during the financial period 2004 R recognised recognised exchange A acquired in p/l in rate EURm Jan. 2004 subsidiaries account equity differences 31 Dec. 2004 Deferred tax assets Confirmed losses 87 –71 17 Changes in fair values 3 0 4 Pension obligations 25 –1 24 Impact of consolidation and elimination 1 10 –2 2 11 Other deductible temporary differences 35 135 –4 0 166 Total deferred tax assets 35 258 –78 5 0 222

Other tax assets 2

Deferred tax assets in balance sheet 224

Deferred tax liabilities Depreciation differences and untexed reserves 33 0 –1 –2 31 Changes in fair values 120 42 –20 14 –7 149 Equalisation provision 1 165 –8 158 Impact of consolidation and elimination 116 14 –116 14 Other taxable temporary differences 4 7 4 –1 –4 10 Total deferred tax assets 274 229 –141 13 –13 362

Other tax liabilities 37

Deferred tax liabilities in balance sheet 399

Sampo Group I Board of Directors’ Report and Financial Statements 99 IFRS FINANCIAL STATEMENTS: OTHER notes

26 taxed EURm 2005 2004 Profit before tax 1,295 948

Tax calculated at parent company’s tax rate 337 275

Consolidation procedures and eliminations – –123 Income not subject to tax –8 –20 Net profit from associates –5 –18 Different tax rates on overseas earnings 4 –13 Tax losses carried forward – –8 Expenses not allowable for tax purposes 4 1 Effect of tax rate changes on deferred taxes – 6 Other 0 – Total 332 100

27 amounts Owed to Credit Institutions and Customers EURm 2005 2004 Banking and investment services Amounts owed to credit institutions Liabilities to central banks 0 0 Deposits from credit insitutions 664 174 Other liabilities owed to credit institutions 202 383 Total 867 557

Amounts owed to customers Deposits Demand deposits 2,856 2,559 Savings accounts 1,075 1,009 Current accounts 3,716 3,215 Money market deposits 1,122 1,334 Other time deposits 2,673 2,292 Total deposits 11,442 10,410 Other liabilities Other liabilities 28 18 Total amounts owed to customers 11,470 10,427

Banking and investment services, total 12,336 10,985 Other business Amounts owed to credit institutions Liabilities to credit institutions – – Other 6 207 Total 6 207

Amounts owed to customers Other liabilities 99 106 Total amounts owed to customers 99 106

Other business, total 106 313

Elimination items between segments –182 –260

Group, total 12,260 11,037

100 Sampo Group I Board of Directors’ Report and Financial Statements 28 debt Securities in Issue EURm 2005 2004 Banking and investment services Debt securities in issue Certificates of deposit 3,384 3,289 Bonds and notes 4,238 2,623 of which in foreign currency 745 603

Total debt securities in issue 7,621 5,912

Subordinated debt securities Subordinated loans 352 231 Debentures 399 404 Perpetuals 89 77

Total subordinated debt securities 840 712

Banking and investment services, total 8,461 6,625

Sampo Bank issued on 18 March 2004 EUR 125 million preferred capital securities. The loan pays fixed interest rate for the first ten years and floating rate interest after that. The interest can be paid only from the distributable capital. The loan is perpetual and is repayable only with the consent of the Finnish Financial Supervision Authority at the earliest on 2014 and on any interest payment after that.

Sampo Bank issued on 13 October 2004 EUR 100 million preferred capital securities. The loan pays fixed interest rate for the first year and floating rate interest after that, however capped to 8.5% p.a. The interest can be paid only from the distributable capital. The loan is perpetual and is repayable only with the consent of the Finnish Financial Supervision Authority at the earliest on 2014 and on every interest payment date after that.

Sampo Bank issued on 16 December 2005 EURm 125 capital securities. The loan was a floating rate perpetual and pays an interest at 3-month Euribor plus 1.6%. The interest on the loan can be paid only from the distributable capital. Sampo Bank can repay the loan, with the consent of the Finnish Financial Supervision Authority, at the earliest on 16 December 2010 and thereafter on any interest payment date.

Sampo Housing Loan Bank issued in 2005 first significant covered bond with a principal of EURm 1 000 and a maturity of 5 years. The loan pays fixed interest rate of 2.5%, which was swapped to floating rate at 0.01% below Euribor.

Sampo Bank Group had in issue on 31 December 2005 three capital securities included in Tier 1 capital, all of them repayable with the consent of the Finnish Financial Supervision Authority and in one of them a step-up clause at the earliest call. Continues, Note 28→

Sampo Group I Board of Directors’ Report and Financial Statements 101 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 P&C insurance Subordinated debt securities Subordinated loans Euro-denominated loans Preferred capital note, 2001 221 219 Preferred capital note, 2002 73 52 Preferred capital note, 2005 149 –

Total subordinated debt securities 443 271

P&C insurance, total 443 271

If P&C Insurance Ltd issued in 2001 EURm 200 preferred capital note. The loan pays fixed interest rate for the first ten years and floating rate interest after that. The loan falls due at the latest March 2021. The loan is listed on the Luxembourg Exchange.

If P&C Insurance Company Ltd issued on 2002 EURm 65 preferred capital note. The loan was wholly subscribed by the If Group’s owners of that moment. The loan has a maturity of 20 years. It pays fixed interest rate for the first 10 years and the last 10 years floating rate interest. The loans is not listed.

If P&C Insurance issued in June 2005 EURm 150 preferred capital note. The loan is perpetual and pays fixed interest rate for the first ten years. The loan is listed on the Luxembourg Exchange.

EURm 2005 2004 Life insurance Subordinated debt securities Subordinated loans 100 100

Life insurance, total 100 100

Sampo Life issued on 2002 EUR 100 million Capital Notes. The loan is perpetual and pays floating rate interest. The interest is payable only from distributable capital. The loan is repayable only with the consent of the Insurance Supervisory Authority and at the earliest on 2012 or any interest payment date after that. The loans was 100% subscribed by Sampo Plc.

EURm 2005 2004 Other business Debt securities in issue Certificates of deposit 149 325 Bonds and notes 290 299 Total debt securities in issue 438 624

Subordinated debt securities Debentures 597 598

Other business, total 1,036 1,222

Elimination items between segments –393 –290

Group, total 9,647 7,928

102 Sampo Group I Board of Directors’ Report and Financial Statements 29 liabilities from Insurance and Investment Contracts EURm 2005 2004 P&C insurance Liabilities from insurance contracts Insurance contracts Provision for unearned premiums 1,628 1,601 Provision for claims outstanding 6,257 5,999 Incurred and reported losses 1,952 1,902 Incurred but not reported losses (IBNR) 2,747 2,611 Provisions for claims-adjustment costs 207 200 Provisions for annuities and sickness benefits 1,351 1,287 P&C insurance total 7,885 7,600

Recoverable from insurers Provision for unearned premiums 49 34 Provision for claims outstanding 504 645 Incurred and reported losses 285 345 Incurred but not reported losses (IBNR) 219 300 Total recoverable from insurers 553 679

Life insurance Insurance contracts Liabilities for contracts with discretionary participation feature (DPF) Provision for unearned premiums 3,108 3,058 Provision for claims outstanding 1,463 1,336 Liabilities for contracts without discretionary participation feature (DPF) Provision for unearned premiums 15 13 Provision for claims outstanding 3 15 Total 4,589 4,423

Assumed reinsurance Provision for unearned premiums 3 19 Provision for claims outstanding 2 3 Total 6 22

Insurance contracts total Provision for unearned premiums 3,127 3,090 Provision for claims outstanding 1,468 1,354 Total 4,595 4,445

Investment contracts Liabilities for contracts with discretionary participation feature (DPF) Provision for unearned premiums 144 182 Investment contracts total 144 182

Continues, Note 29→

Sampo Group I Board of Directors’ Report and Financial Statements 103 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 Liabilities for insurance and investment contracts total Provision for unearned premiums 3,270 3,272 Provision for claims outstanding 1,468 1,354 Life insurance total 4,738 4,626

Recoverable from reinsurers Provision for unearned premiums 0 –3 Provision for claims outstanding –5 –13 Total –5 –16

Investment contracts do not include a provision for claims outstanding.

Liability adequacy test does not give rise to supplementary claims.

Exemption allowed in the standard has been applied to investment contracts with DPF or contracts with a right to trade-off for an investment contract with DPF. These investment contracts have been valued like insurance contracts.

EURm 2005 2004 Group, total 12,623 12,226

30 liabilities from Unit-linked Insurance and Investment Contracts EURm 2005 2004 Life insurance Unit-linked insurance contracts 1,246 870 Unit-linked investment contracts 16 14 Total 1,262 884

104 Sampo Group I Board of Directors’ Report and Financial Statements 31 other Liabilities EURm 2005 2004 Banking and investment services Other liabilities Interests 272 255 Items in transit 369 296 Finance lease liabilities – 3 Other liabilities 251 155 Total 892 710

Banking and investment services, total 892 710

R restructuring pension EURm provision provision total P&C insurance Provisions Provisions at 1 Jan. 2005 39 99 138 Exchange rate differences 0 –2 –2 Additions 32 –13 19 Amounts used during the period –13 –2 –15 Unused amounts reversed during the period –3 –3 Discount effect – 18 18 At 31 December 55 100 155

Current (less than 1 year) 25 11 35 Non-current (more than 1 year) 30 89 119 Total 55 100 155

Provisions at 1 April 40 102 142 Exchange rate differences 1 4 5 Additions 30 –10 20 Amounts used during the period –21 –11 –32 Unused amounts reversed during the period –12 – –12 Discount effect – 14 14 At 31 December 39 99 138

Current (less than 1 year) 20 11 31 Non-current (more than 1 year) 19 88 107 Total 39 99 138

In addition to statutory retirement pension insurance, the Group has certain voluntary defined benefit plans. The voluntary defined benefit plans are intra-Group and included in the insurance liabilities of Henki-Sampo. The amount is negligible and they have no material impact on the Group profit or loss or equity. Milj. 2005 2004 Other liabilities Arising out of direct insurance operations 142 166 Arising out of reinsurance operations 32 46 Settlement liabilities 0 46 Liabilities related to Patient Insurance Pool 52 49 Prepayments and accrued income 154 173 Other liabilities 119 145 Total 499 625

P&C insurance, total 654 762

Continues, Note 31→

Sampo Group I Board of Directors’ Report and Financial Statements 105 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 Life insurance Other liabilities Interests 8 9 Arising out of reinsurance operations 7 17 Other liabilities 55 27 Total 70 53

Life insurance, total 70 53

Other business Other liabilities Interests 23 25 Other liabilities 78 115 Total 101 140

Other business, total 101 140

Elimination items between segments –67 –55

Group, total 1,650 1,610

106 Sampo Group I Board of Directors’ Report and Financial Statements 32 employee Benefits Employee benefits Sampo has defined benefit plans in P&C insurance business in Sweden and Norway.

In addition, the Group has certain voluntary intra-Group defined benefit plans, which are included in the insurance liabilities of Sampo Life and the amount of which is negligible. 2005 2004 funded Unfunded funded Unfunded EURm plans plans total plans plans total Employee benefit obligations of P&C Insurance 31 Dec. Employee benefit obligation Present value of estimated pension obligation 298 54 352 260 41 302 Fair value of plan assets 203 – 203 178 – 178 Net obligation/liability 95 54 148 82 41 124 Net cumulative unrecognised actuarial gains/losses –60 –7 –67 –40 –3 –43 Net pension obligation recognised in the balance sheet 35 46 81 42 38 81 Expected wage taxes/social security costs 12 7 19 13 6 19

Recognised in Income Statement Current service cost 19 13 Interest expense on obligation 19 16 Expected rate of return on plan assets at start of year –10 –9 Actuarial gains (+) or losses (-) recognised during the financial year 1 – Losses (+) or gains (-) on curtailments and settlements 2 7 Past service cost –3 – Pension costs 27 27

Specification of change in net liability entered in the balance sheet Net liability on 1 Jan, 2005 excl. social security 77 86 Net cost recognised in Income Statement 27 27 Exchange differences on foreign plans 2 1 Contributions –23 –27 Paid out pensions and settlements –2 –6 Net liability on 31 Dec. 81 81 Provision for social security 19 19 Provision for pensions 31 Dec. 100 99

The following actuarial assumptions have been used for the calculation of defined benefit pension plans in Sweden and Norway:

sweden sweden norway norway 31 Dec. 2005 31 Dec. 2004 31 Dec. 2005 31 Dec. 2004 Discount interest rate 3.75% 4.75% 4.50% 5.00% Anticipated return 4.25% 4.75% 5.80% 6.00% Future pay increases 3.25% 3.25% 3.00% 2.75% Price inflation 2.00% 2.00% 2.50% 2.50%

Pension obligations, and the pension cost accrued during the fiscal period, are calculated using actuarial methods. Earned pension rights are calculated on a straight-line basis during the employment period. The calculation of pension obligations is based on anticipated future pension payments and includes assumptions regarding mortality, employee turnover and salary growth. The nominally calculated liability is discounted to present value using an interest-rate based on the current market rate adjusted to take into account the duration of the company’s pension obligations. After deducting plan assets, a net asset or liability is entered in the balance sheet. The net obligation reported in the closing balance pertained to defined- benefit pension plans for employees in Sweden and Norway. The pension benefits arising in the other countries covered by the Group’s operations have been classified as defined-contribution plans. Continues, Note 32→

Sampo Group I Board of Directors’ Report and Financial Statements 107 IFRS FINANCIAL STATEMENTS: OTHER notes

Personnel fund Members of the Sampo Group’s personnel fund comprise the staff of Sampo plc and its Finnish subsidiaries located in Fin- land, except for members of Bord of Directors and Bord of Management employed by the Group companies, Managing Di- rectors of Group companies and other management personnel or executives and experts involved in the Group long-term incentive schemes. An estimated amount of the profit-sharing bonuses to the personnel fund for 2005 is EURm 3.

Other short-term employee benefits There are other short-term staff incentive schemes in the Group, the terms of which vary according to country, business area or company. Benefits are recognised in the profit or loss for the year they arise from. An estimated amount of these profit-sharing bonuses for 2005 is EURm 47.

Long-term incentive schemes With the exception of the CEO, the members of the Group Executive Committee are participants in the long-term incentive schemes 2003, 2004 and 2005 for Sampo plc´s executive management. The bonuses shall be paid during year 2005–2008 and they shall be based on the financial performance of Sampo and the value of Sampo’s Series A share. At 31 December 2005 the total provision for the long-term incentive schemes was EUR 38 million. The estimated amount was increased by EUR 22 million in 2005. Based on the Scheme 2003, the first payment amounting to EUR 5.7 million was paid in December 2005. The terms of the schemes are available on Sampo’s website at www.sampo.com.

108 Sampo Group I Board of Directors’ Report and Financial Statements 33 continent Liabilities and Commitments EURm 2005 2004 Banking and investment services Off-balance sheet items Guarantees 2,811 2,429 Undrawn loans, overdraft facilities and other commitments to lend 4,062 3,575 - original maturity less than one year 642 874 - original maturity more than one year 3,420 2,701 Other irrevocable commitments 17 7 Total 6,890 6,011

Off-balance sheet items consist mainly of guarantees and commitments to extend credit. Guarantees including irrevocable letters of credit comprise commitments written on behalf of customers. Commitments to extend credit are irrevocable commitments and comprise undrawn loans, overdraft facilities and other commitments to lend. The commitments are stated to the amount that can be required to be paid on the basis of the commitment. For guarantees a provision is recognised when the Group considers it more likely than not that an obligation exists under its guarantees.

Assets pledged as collateral for liabilities or contingent liabilities 2005 2004 A assets liabilities/ assets liabilities/ EURm pledged commitments pledged commitments Assets pledged as collateral Financial assets at fair value through p/l - Trading securities 1,593 1,038 1,157 965 Loans and receivables - Security deposits 1,180 1,751 107 794

Sampo Bank plc has entered into long-term deposit contracts called Guaranteed Investment Contracts. In each contract the maximum amount permitted to be invested and the fixed interest rate to be paid for the investment are specified with the customer. This means that the amount to be invested varies during the term of the contract but the interest rate is fixed. The maximum amount permitted to be invested under these contracts was EURm 151 at the balance sheet date. Contracts mature in 2025 at the latest.

EURm 2005 2004 Non-cancellable operating leases Minimum lease payments under non-cancellable operating leases - not later than one year 21 20 - later than one year and not later than five years 53 50 - later than five years 43 50 Total 118 120

Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec 12 13

Lease and sublease payments recognised as an expense in the period - sublease payments 4 4

Continues, Note 33→

Sampo Group I Board of Directors’ Report and Financial Statements 109 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 P&C insurance Off-balance sheet items Guarantees 62 41 Other irrevocable commitments 31 45 Total 93 86

Other Assets covered by policyholders’ beneficiary rights 303 296

Assets pledged as collateral for liabilities or contingent liabilities 2005 2004 A assets liabilities/ assets liabilities/ EURm pledged commitments pledged commitments Assets pledged as collateral Cash at balances at central banks 42 0 35 – Investments - Investment securities 267 129 239 97

EURm 2005 2004 Non-cancellable operating leases Minimum lease payments under non-cancellable operating leases - not later than one year 26 29 - later than one year and not later than five years 72 73 - later than five years 39 7 Total 137 109

Lease and sublease payments recognised as an expense in the period - minimum lease payments 28 31 - sublease payments 0 0 Total 29 31

Subsidaries If P&C Insurance Ltd and If P&C Insurance Company Ltd provide insurance with mutual undertakings within the Nordic Nuclear Insurance Pool and within the Norwegian Natural Perils’ Pool. The subsidiary If P&C Insurance Com- pany Ltd has funded assets within the framework of the Finnish guarantee ordinance systems pertaining to such matters as Workers Compensation insurance.

In connection with the transfer of property and casualty insurance business from the Skandia group to the If Group as of March 1, 1999, If P&C Insurance Holding Ltd and If P&C Insurance Ltd issued a guarantee for the benefit of Försäkringsak- tiebolaget Skandia (publ.) whereby the aforementioned companies in the If Group mutually guarantee that companies in the Skandia group will be indemnified against any claims or actions due to guarantees or similar commitments made by companies in the Skandia group within the property and casualty insurance business transferred to the If Group.

With respect to certain IT systems that If and Sampo use jointly, If has undertaken to indemnify Sampo for any costs that Sampo may incur in relation to the owner of the systems.

If P&C Insurance Holding Ltd and If P&C Insurance Ltd have separately entered into contracts with Försäkringsaktiebolaget Skandia (publ.) and Tryg-Baltica Forsikrings AS whereby Skandia and Tryg-Baltica will be indemnified against any claims attributable to guarantees issued by Försäkringsaktiebolaget Skandia (publ.) and Vesta Forsikring AS, on behalf of Skandia Marine Insurance Company (U.K.) Ltd. in favor of the Institute of London Underwriters.

If P&C Insurance Holding Ltd has issued a guarantee to the benefit of TietoEnator Corporation whereby If Holding guarantees the commitments incurred by the If Group company If It Services A/S with TietoEnator based on an agreement covering IT-services. The guarantee will indemnify TietoEnator if If IT Services A/S is declared bankrupt, suspends payments in general, seeks a composition of creditors or in any other way is deemed to be insolvent.

If P&C Insurance Holding Ltd has issued a guarantee to the benefit of Svenska Handelsbanken AB (publ) whereby If Hold- ing guarantees the commitments incurred by the If P&C Insurance Ltd deriving from short term credits up to an amount of EURm 53 and for commitments deriving from derivates transaction and – on behalf of – If P&C Insurance Ltd, If P&C Insur- ance Company Ltd and Capital Assurance Company for those companies commitments relating to Letters of Credits issued on behalf of their insurance operations.

110 Sampo Group I Board of Directors’ Report and Financial Statements EURm 2005 2004 Life insurance Off-balance sheet items Fund commitments 184 179

Assets pledged as collateral for liabilities or contingent liabilities 2005 2004 A assets liabilities/ assets liabilities/ EURm pledged Commitments pledged Commitments Assets pledged as collateral Investments - Investment securities 4 0 9 3

EURm 2005 2004 Non-cancellable operating leases Minimum lease payments under non-cancellable non-cancellable operating leases - not later than one year 2 – - later than one year and not later than five years 6 – - later than five years 7 – Total 15 –

Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec. 0 –

Lease and sublease payments recognised as an expense in the period - minimum lease payments –1 – - sublease payments 0 – Total –1 –

EURm 2005 2004 Other business Off-balance sheet items Subscription liabilities 12 17

Other Sampo plc is involved in a legal dispute concerning a VAT refund. If the decision of the Tax Office for Major Corporations, which is under complaint, remains final, despite the appeal process, the impact on the profit for the period is estimated to be EURm 26, at the maximum. See Note 37 for the financial statements of Sampo plc. Continues, Note 33→

Sampo Group I Board of Directors’ Report and Financial Statements 111 IFRS FINANCIAL STATEMENTS: OTHER notes

EURm 2005 2004 Non-cancellable operating leases Minimum lease payments under non-cancellable operating leases - not later than one year 2 1 - later than one year and not later than five years 6 6 - later than five years – 0 Total 8 8

Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec 0 0

Lease and sublease payments recognised as an expense in the period - contingent rents 0 0 - sublease payments 1 1 Total 1 1

The Group had at the end of 2005 premises a total of 361 364 m2 taken as a lessee. The contracts have been made mainly for 3 to 10 years.

112 Sampo Group I Board of Directors’ Report and Financial Statements 34 equity and Reserves Equity N number of share- premium EURm shares capital account total At 1 January 2004 553,919,965 93 971 1,065 Subscription for shares with options 9,842,450 2 48 49 At 31 December 2004 563,762,415 95 1,019 1,114 Subscription for shares with options 7,555,900 1 29 30 At 31 December 2005 571,318,315 96 1,048 1,144 Own shares held by the company 7,000,000

Reserves and retained earnings

EURm Total Reserves at 31 December 2004 Legal reserve 370 Fair value reserve 233 Total 603

Reserves at 31 December 2005 Legal reserve 370 Fair value reserve 396 Total 766 Movements in reserves: Legal reserve The legal reserve comprises the amounts that shall be transferred from the distributable equity according to the articles of association or on the basis of the decision of the AGM. No change has been in the legal reserve during the financial years of 2004 or 2005. Fair value reserve At 1 January 2004 170 Cash flow hedge: Recognised in equity 3 Transferred to profit or loss –10 Financial asset available-for-sale Recognised in equity 209 Transferred to profit or loss –138 At 31 December 2004 233 Cash flow hedge: Recognised in equity 3 Transferred to profit or loss –8 Financial asset available-for-sale Recognised in equity 375 Transferred to profit or loss –207 At 31 December 2005 396 The fair value reserve consists of changes in the fair values of the financial assets available for sale and derivative instruments used for hedging cash flows. Retained earnings At 1 January 2004 1,720 Profit for the financial year 811 Dividend distribution –831 Recognition of undrawn dividends 1 Exchange rate translation difference 22 At 31 December 2004 1,723 Profit for the financial year 949 Dividend distribution –113 Exchange rate translation difference –62 Recognition of undrawn dividends 4 Acquisition of own shares –88 At 31 December 2005 2,412

Continues, Note 34→

Sampo Group I Board of Directors’ Report and Financial Statements 113 IFRS FINANCIAL STATEMENTS: OTHER notes

Shares and votes According to Sampo plc’s Articles of Association, the share capital can be at minimum EUR 30,105,638.84 and at maximum EUR 120,422,555.30. On 31 December, 2005, the company’s share capital was EUR 96,088,842.74.

The number of Sampo plc’s shares at 31 December 2005 was 571,318,315, of which 570,118,315 were A shares and 1,200,000 were B shares. The counter book value of the shares is EUR 0.17. Each A share has 1 vote and each B share has 5 votes at General Meetings. All the B shares are owned by the Kaleva Mutual Insurance Company. B shares can be converted into A shares at the request of the holder of B shares.

The A shares and the 2000 A/B options are quoted on the Helsinki Stock Exchange.

Sampo plc’s Board of Directors decided at 5 October 2004 to apply for the listing of a new share category called Sampo Uudet (Sampo New) on the main list of the Helsinki Stock Exchange. Sampo A shares subscribed for with warrants or options after 31 December 2004 were to be traded under the new share category.

The new share category was adopted at the beginning of 2005 in order to facilitate the payment of year 2004 dividends, because Sampo’s A shares subscribed for after 31 December 2004 are entitled, on the basis of the option programs, to dividends only after the dividend distribution for 2004. The Sampo Uudet share category was combined with Sampo A shares after the dividend distribution in April 2005.

The Annual General Meeting of 11 April 2005 granted the Board of Directors authorisation, valid until 11 April 2006, to buy back Sampo shares. The maximum amount of A shares that can be bought back is five per cent of the company’s share capital or of the number of votes carried by all shares. Shares can be bought back either by an offer made to all holders of A shares in proportion to their holdings and on equal terms determined by the Board, or through public trading on the Hel- sinki Stock Exchange, in which case the shares will not be bought in proportion to the shareholders’ holdings.

The shares can only be bought back to be cancelled. The shares can only be cancelled with the separate approval of shareholders’ meeting to lower share capital.

On 31 December 2005, Sampo plc held 7 million Sampo A shares, which corresponds to approximately 1.2 per cent of the total number of shares and votes. The shares were bought through public trading on the Helsinki Stock Exchange and EUR 87.7 million was used for acquisition of the shares. Other Group companies did not hold shares in parent company at the end of 2005.

Changes in share capital During the year under review, warrants from Sampo’s 1998 option programme were exercised to subscribe for 3,736,800 A shares. Likewise, options from Sampo’s 2000 option programme were exercised to subscribe for 2,182,450 A shares, of which the Board of Directors approved 1,800,250 shares in 2005 and the rest in January 2006. In addition, the Board of Directors approved 2,018,850 shares subscribed in 2004, which raised the share capital by 1,270,811.16 during the year 2005.

The new shares were admitted for trading on the Helsinki Stock Exchange following the entry of each lot in the Trade Re- gister.

114 Sampo Group I Board of Directors’ Report and Financial Statements Option schemes The number of shares entitled to subscription, the average subscription price and the subscription period Option schemes 1 998 2000 total Outstanding at 1 Jan. 2005 3,874,300 25,995,000 29,869,300 Exercised *) 3,736,800 2,182,450 5,919,250 Expired 137,500 – 137,500 Outstanding at 31 Dec. 2005 – 23,812,550 23,812,550 Exercisable at 1 Jan. 2005 3,874,300 25,995,000 29,869,300 Average subscription price **) 4.27 6.94 6.59 Exercisable at 31 Dec. 2005 – 23,812,550 23,812,550 Average subscription price **) – 6.74 6.74 Subscription period ended/ends 31 May 2005 31 Jan. 2007

*) Include 382,200 shares subscribed in December 2005 and entered in the Trade Register in January 2006.

**) The subscription price of each series is fixed but reduced by the amount of paid dividend. The subscription price of the 1998 scheme is a rounded value.

The subscription rights for 5,151,250 shares owned by the Satura, a wholly-owned subsidiary of Sampo Plc, have not been deducted from the share amounts.

The weighed average subscription price and the market price of the share in the subscription day

€ 998 2000 total Average subscription price 4.07 6.74 5.05 Average market price 11.21 13.93 12.21

1998 Bond with warrants On May, 1998 Sampo issued a bond with warrants valued at approximately EURm 1.1. The bond, which did not pay interest, was repaid on 22 May, 2001. All staff permanently employed by Sampo Group and the Kaleva Mutual Insurance Company were entitled to subscribe. Around 72 per cent of the staff employed at the time utilised their entitlement to subscribe.

The subscription period ended on 31 May, 2005. As a result of subscriptions, the share capital could have increased by the maximum of 16,500,00 A shares. At the end of the subscription period 16,362,500 A shares were subscribed.

Year 2000 option programme On 29 Sep, 2000 an Extraordinary General Meeting of Sampo decided to offer options without consideration to the management, middle management and other key personnel of Sampo and its subsidiaries and to a wholly-owned subsidiary specified by the Board of Directors. The decision to offer these options disapplied the shareholders’ pre-emptive subscription rights.

A total of 5,200,000 options were issued, of which 2,600,000 are designated as A options and 2,600,000 as B options. Each option entitles its holder to subscribe for five Sampo A shares. The year 2000 B option were admitted for trading on the main list of Helsinki Stock Exchange after the stipulated subscription requirements had been met and were combined with the A options to form A/B options. The share subscription period for all the options ends on 31 Jan, 2007.

At the end of the year under review, 4,762,510 of the 2000 A/B warrants entitled to subscription for 23,812,550 shares, were still unexercised. With 382,200 share subscriptions still unapproved at the end of the year, the share capital can increase by a maximum of EURm 4,07, which equals approximately 4,2 per cent of the share capital as of the end of 2005.

The share subscription price is EUR 6,74. If the Annual General Meeting approves the Board’s proposed dividend distiribu- tion for 2005, the subscription price will be reduced to EUR 6,14.

Sampo Group I Board of Directors’ Report and Financial Statements 115 IFRS FINANCIAL STATEMENTS: OTHER notes

35 dividends The Board of Directors proposes to the Annual General Meeting on 5 April 2006 that a dividend of EUR 0.60 per share, EUR 338,820,309 in total (EUR 0.20 per share, EUR 113,156,253 in total) be distributed for 2005. The dividends to be paid will be accounted for in the equity in 2006 as an appropriation of retained earnings.

36 related Party Disclosures Key management personnel The key management personnel in Sampo Group consists of the members of the Board of Directors of Sampo plc and Sampo Group’s Executive Committee.

Key management compensation EURm 2005 2004 Short-term employee benefits 6 6 Post employment benefits 2 2 Other long-term benefits 6 – Total 15 8

Short-term employee benefits comprise salaries and other short-terms benefits, including profit-sharing bonuses accounted for for the year, and social security costs.

Post employment benefits include pension benefits under the Employees’ Pensions Act (TEL) in Finland and voluntary supplementary pension benefits.

Other long-term benefits consist of the benefits under long-term incentive schemes accounted for for the year.

Loans and receivables EURm 2005 2004 Key management personnel with close family members and entities that are controlled or significantly influenced by these 23 21

The interest on loans to the key management personnel is at least as high as on the staff loans referred to in the Income and Capital Tax Act, section 67. Also other terms of the loans equal to the terms of the staff loans confirmed in the Group. The loans are secured. The terms of the loans to the entities controlled or significantly influenced by the above mentioned persons equal to those granted to other corporate customers. Associates EURm 2005 2004 Loans and receivables 100 94 Liabilities to credit institutions and customers 79 21

37 legal Proceedings There are a number of legal proceedings against the Group companies outstanding on 31 December 2005, arising in the ordinary course of business. No provisions have been made as professional advice indicates that it is unlikely that any significant loss will arise.

116 Sampo Group I Board of Directors’ Report and Financial Statements 38 investments in Subsidiaries Group carrying EURm holding % amount Banking and investment services Sampo Bank plc 100 787 Sampo Housing Loan Bank plc 100 41 MB Mezzanine Fund II Ky 62.5 8 AS Sampo Pank 100 39 AB Sampo bankas 100 58 AS Sampo Banka 100 20 3C Asset Management 60.2 1 Mandatum & Co Ltd 67.8 1 Mandatum Asset Management Ltd 100 4 Mandatum Stockbrokers Ltd 81.3 3 Arvo Value Asset Management Ltd 62.0 0 MB Equity Partners Ltd 40.0 0 Sampo Fund Management Ltd 100 4 P&C insurance If P&C Insurance Holding Ltd 100 1,886 If P&C Insurance Ltd 100 1,446 If Säkerhet AB 100 1 If P&C Insurance Company Ltd 100 550 UAB If Draudimas 100 8 AAS If Latvia 100 6 AS If Eesti Kindlustus 100 47 Life insurance Sampo Life Insurance Company Ltd 100 484 AS Sampo Eesti Elukindlustus 100 2 UAB Sampo Lietuva Gyvybes Draudimas 100 4 AAS Sampo Latvija Dziviba 100 4 If Livförsäkring AB 100 5 Other business Oy Finnish Captive & Risk Services Ltd 100 0 If IT Services A/S 100 0 Nortwest 2 Seething Lane 100 7 Riskienhallinta Oy 100 0 Realty World Ltd 100 2 Satura Oy 100 1 Primasoft Oy 40 1

Exclude property and housing companies accounted for in the consolidated accounts.

Sampo Group I Board of Directors’ Report and Financial Statements 117 IFRS FINANCIAL STATEMENTS: OTHER notes

39 investments in Shares and Participations Other than Subsidiaries and Associates C carrying Holding amount/ EURm country no. of shares % fair value Life insurance Listed companies Alma Media Corporation FI 6,655,512 8.92% 51 Aspocomp Group Plc FI 2,626,752 13.08% 10 Comptel Corporation FI 19,569,925 18.28% 32 Elisa Corporation FI 1,158,435 0.70% 18 Finnlines Plc FI 800,000 1.97% 12 Fiskars Corporation FI 1,142,326 1.47% 11 Kemira Oyj FI 3,410,940 2.73% 46 Lassila & Tikanoja Plc FI 2,171,238 5.66% 32 Nokia Corporation FI 2,992,124 0.07% 46 Norvestia Plc FI 1,789,538 11.68% 15 Okmetic Oyj FI 872,250 5.17% 2 Outokumpu Oyj FI 431,600 0.24% 5 Sanoma-WSOY Corporation FI 2,512,787 1.60% 50 Stora Enso Oyj FI 3,443,889 0.42% 39 Suominen Yhtymä Corporation FI 1,398,424 5.90% 4 Tamfelt Corporation FI 788,427 2.86% 7 Tecnomen Corporation FI 3,083,400 5.29% 8 Teleste Corporation FI 1,624,200 9.37% 12 Turvatiimi Oyj FI 5,699,436 9.85% 3 Uponor Corporation FI 4,609,970 6.20% 83 UPM-Kymmene Oyj FI 3,740,300 0.71% 62 Vaisala Group FI 766,650 4.34% 18 Wärtsilä Corporation FI 1,984,668 2.11% 49 YIT Corporation FI 5,366,710 8.60% 194 Total 809 Other listed companies 11 Listed companies in total 821 Other companies Ahlstrom Oyj FI 382,800 1.05% 11 Atine Group Oyj FI 1,195,000 11.31% 2 Varma Mutual Pension Insurance Company FI 14 19.72% 2 Kaleva Mutual Insurance Company FI 5,000 10.00% 1 Meridea Financial Software Oy FI 14,289,177 16.41% 2 Metsä Tissue Oyj FI 553,407 1.84% 11 Oy G. W. Sohlberg Ab FI 244,813 9.07% 13 Sato-Yhtymä Oyj FI 124,419 5.66% 10 Unit trusts BBL Baltic States Cap Fund FI 10,042 18 Fourton Odysseus Growth FI 126,716 18 Mandatum China Growth FI 7,832,662 9 Mandatum Emerging Asia Growth FI 2,164,262 56 Mandatum Emerging Markets Debt FI 65,806,418 97 Mandatum Europe Enhanced Index FI 32,876,947 52 Mandatum European Opportunities Growth FI 60,000,000 61 Mandatum High Yield Growth FI 145,734,761 148 Mandatum Gold Growth FI 4,712,183 5 Mandatum Latin America K FI 17,718,541 32 Mandatum North America Enhanced Index FI 14,965,134 19 Mandatum Commodity Growth FI 5,000,000 5 Mandatum Russia Growth FI 5,223,977 11 Mandatum Russia Small Cap Growth FI 15,052,750 16 Mandatum US Bond Growth FI 101,709,000 94 Mandatum US Small Cap Value Growth FI 25,942,959 38 Sampo Japan Equity Growth FI 490,573,991 73

118 Sampo Group I Board of Directors’ Report and Financial Statements C carrying Holding amount/ EURm country no. of shares % fair value Capital trusts Fenno rahasto Ky FI 540,088 6 Finnmezzanine rahasto III A Ky FI 728,662 8 Finnventure rahasto V Ky FI 374,721 8 First European Fund Investments UK L.P. FI 962,036 7 Total 834 Other shares and participations 37 Domestic shares and participations in total 1,692 Listed foreign shares and participations Nordea Bank AB SE 7,955,000 0.29 % 70 Other listed companies 1 Listed foreign shares and participations in total 72 Other foreign shares and participations Nordben Life & Pension Insurance Co Ltd GB 9,300,000 14,76% 4 Bravida ASA NO 216,838 11,58% 50 Foreign unit trusts New Providence Fund Ltd BS 49,039 12 RMF Commodity Strategies (Class SOE1) BS 14,787 16 RMF Relative Value Strategies F BS 12,243 16 Trigon Central and Eastern European Fund EE 673,504 10 Richelieu France FR 52,910 21 Lloyd George Asia Small Companies Fund HK 290,769 23 APS China A Share Fund IE 120,768 11 APS Japan Growth Fund KY 183,278 15 Prosperity Cub Fund KY 350,000 48 Comgest Panda LU 18,631 25 JPMorgan Fleming Funds - India Fund LU 312,990 12 Merril Lynch IIF Japan Opportunities Fund A2 LU 397,562 22 Futuris Hedge Fund SE 19,917 5 Nektar Hedge Fund SE 59,045 13 Foreign capital trusts Access Capital L.P. GB 4,335,141 37 Duke Street Capital IV UK L.P. GB 437,557 8 Duke Street Capital V Limited GB 639,454 6 EQT Northern Europe III UK No 1 L.P. GB 1,146,152 14 Industri Kapital 2000 Fund GB 650,776 6 Permira Europe II L.P.2 GB 452,235 7 Schroder Ventures Asia Pacific Fund CLP 2 KY 723,375 6 VenCap 9 LLC KY 941,786 8 Unicapital Investments II LU 690,425 7 CapMan Equity VII B L.P. NL 633,373 6 EQT IV ISS Co-investment Limited Partnership NL 872,610 9 Behrman Capital III L.P. US 865,662 7 Thomas H. Lee Equity Fund V L.P. US 888,992 9 Other foreign shares and participations in total 433 Other shares and participations 78 Foreign shares and participations in total 583

Holdings exceeding EURm 5 and holdings in listed companies exceeding five per cent specified. Continues, Note 39→

Sampo Group I Board of Directors’ Report and Financial Statements 119 IFRS FINANCIAL STATEMENTS: OTHER notes

C carrying Holding amount/ EURm country no. of shares % fair value P&C Insurance Listed companies Prosafe NO 385,550 1.13% 14 Höganäs SE 2,743,000 8.04% 50 Veidekke NO 1,046,850 3.66% 25 Cardo SE 2,839,300 9.46% 59 Gunnebo Industrier SE 876,520 9.99% 11 Nolato B SE 928,800 3.53% 8 Scania B SE 1,000,000 0.44% 31 Svedbergs B SE 527,000 9.94% 13 Gunnebo SE 4,380,500 9.99% 37 Astrazeneca GB 600,000 0.04% 25 Sectra B SE 934,400 2.55% 6 Ballingslöv SE 1,068,800 9.96% 18 Ekornes NO 470,600 1.28% 7 Hennes & Mauritz B SE 1,600,000 0.19% 46 Nobia SE 3,639,700 6.31% 62 Bure SE 27,605,000 4.57% 7 Danske Bank DK 1,600,000 0.25% 48 Other listed companies 11 Listed companies in total 476

Other than listed companies 1

C carrying Holding amount/ EURm country no. of shares % fair value Unit trusts APS Japan Growth Fund JPY KY 141,555 12 APS Small Cap Alpha KY 300,566 25 Dnb Aktiehedgefond Primus SE 482,194 6 EQT Northern Europe UK 1 LP FI 1,716,138 25 Mandatum Emerging Asia Growth FI 2,101,128 55 Mandatum Europe Enhanced Index FI 90,133,374 141 Mandatum North America Enhanced Index USD FI 77,154,366 99 Mandatum US Small Cap Value Growth USD FI 64,181,888 95 Private Energy Market Fund LP FI 682,132 6 Sampo Japan Equity Growth FI 489,764,917 73 Other unit trusts 11 Unit trusts in total 547 Real estate shares Flat 5, 6 Aldford Street, London GB 1 1

Holdings exceeding EURm 5 and holdings in listed companies exceeding five per cent specified.

120 Sampo Group I Board of Directors’ Report and Financial Statements parent company sampo plc’s financial statementS Income statement

EURm 2005 2004

Interest income 9 6 Interest expenses –42 –42 Net interest income –34 –36

Dividend income from Group companies 530 450 from associates 3 9 from other companies 6 8

Fee and commission income 0 0 Fee and commission expenses –1 –1

Net income from transactions in securities and foreign excange dealing from transactions in securities 0 0 from foreign exchange dealing 0 –1

Net income from financial assets available for sale –1 102 Gains (losses) from hedge accounting 0 – Net income from investment property –1 3 Other operating income 12 11

Administrative expenses Staff costs Wages and salaries –14 –11 Social security costs Pension costs –2 –1 Other –1 –1 Other administrative expenses –8 –10

Depreciation and impairment on property, plant and equipment and intangible assets –7 –14 Other operating expenses –21 –34 Impairment on loans and advances –2 0 Impairment on other financial assets – –43

Operating profit 460 429

Appropriations – 1 Income taxes 14 –144

Profit for the year 474 286

Sampo Group I Board of Directors’ Report and Financial Statements 121 parent company sampo plc’s financial statementS Balance sheet

EURm 2005 2004

ASSETS

Loans and advances to credit institutions Repayable on demand 47 50

Loans and advances to customers Other than repayable on demand – 13

Debt securities Issued by public bodies 1 – Other 132 99

Shares and participations 51 49 Shares and participations in associates 18 18 Shares and participations in Group companies 3,157 3,276 Derivative financial instruments 2 – Intangible assets 26 24 Property, plant and equipment Properties and shares in property companies Investment property 17 66 Other 14 19 Other 5 5

Other assets 74 45 Prepayments and accrued income 24 22 Deferred tax assets 20 3

TOTAL ASSETS 3,586 3,690

Continues →

122 Sampo Group I Board of Directors’ Report and Financial Statements EURm 2005 2004

LIABILITIES

Liabilities Liabilities to credit institutions Other than repayable on demand – 200

Liabilities to customers Other liabilities Other than repayable on demand 99 105

Debt securities in issue Bonds and notes 290 299 Other 149 325

Other liabilities 49 77 Accruals and deferred income 43 47 Subordinated liabilities Other than capital securities 597 596 Deferred tax liabilities 5 – 1,233 1,649

Accumulated appropriations Depreciation differences 0 0 0 0

Equity Share capital 96 95 Share premiums account 1,048 1,019 Other undistributable reserves Legal reserve 366 366 Distributable reserves Fair value reserve Changes in fair value –9 – Other reserves 273 273 Retained earnings 194 1 Treasury shares –88 – Profit for the year 474 286 2,354 2,041

LIABILITIES 3,586 3,690

Off-balance sheet items Commitments Other than sale and option to resell transactions 12 17

Sampo Group I Board of Directors’ Report and Financial Statements 123 parent company sampo plc’s financial statements Notes to the financial statements

Summary of significant account policies The separate financial statements of Sampo plc for 2005 have been prepared in accordance with the provisions of Article 4 of the Act on Credit Institutions (1607/1993), the Decree of the Ministry of Finance (1259/2000) concerning annual accounts and Group accounts of financial institutions and investment services companies, and Standard 3.1 Financial statements and Annual report issued by the Finnish Financial Supervision Authority. In addition, the provisions of the Accounting Act and Companies Act are followed, with the exceptions mentioned in the Act on Credit Institutions, 30:2 §.The comparative figures in Income statement and Balance sheet for 2004 have been restated to comply with the figures for the financial year. The valuation differences arising from changes in the valuation principles of financial instruments have been recognised as an adjustment into the equity at 1 January 2005 (Note 29).

Accounting policies applied to the separate financial statements of Sampo plc do not materially differ from those of the consolidated financial statements of Sampo plc, prepared in accordance with the International Financial Reporting Stan- dards (IFRS).

Notes to the income statement

1 Interest income and expenses by balance sheet item EURm 2005 Interest income Loans and advances to credit institutions 2 Loans and advances to customers 1 Debt securities 6 Derivative financial instruments 0 Other interest income 0 Total 9

Interest expenses Liabilities to credit institutions 2 Liabilities to customers 4 Debt securities in issue 14 Derivative financial instruments –7 Subordinated liabilities 29 Other interest expenses 0 Total 42

2 Dividend income EURm 2005 Financial assets designated as available for sale 6 Group companies 530 Associates 3 Total 540

3 Fee and commission income and expenses EURm 2005 Fee and commission expenses On guarantees 1 Other 0 Total 1

4 Net income from financial assets available for sale 2005 F from disposal impairment EURm of assets losses Debt securities – – Shares and participations 0 –1 Total 0 –1

124 Sampo Group I Board of Directors’ Report and Financial Statements 5 Net gains (losses) from hedge accounting EURm 2005 Change in fair value of hedging derivatives –2 Change in fair value of hedged items 2 Total 0

6 Net income from investment property EURm 2005 Rental income 8 Depreciation according to plan 0 Profits on disposals 6 Losses on disposals –3 Impairment losses –7 Other income 0 Other expenses –5 Total –1

7 Other operating income and expenses EURm 2005 Other operating income Rental income from property occupied for own activities 1 Profits on disposal of property occupied for own actitivies 0 Other 11 Total 12

Other operating expenses Rental expenses 3 Expenses on property occupied for own activities 1 Losses on disposal of property occupied for own actitivies 1 Other 16 Total 21

8 Depreciation and impairment on property, plant and equipment and intangible assets EURm 2005 Depreciation and amortisation On property, plant and equipment 1 On intangible assets 6 Total 7

9 Impairment losses on loans and advances and other financial assets EURm 2005 On loans and advances to customers 2 Total 2

10 Information on business areas and geographical market areas Sampo plc’s income comprise primarily dividend income from subsidiaries, reduced by interest expenses on funding the acquisition of If. Income generates totally in Finland. 2005 Total income, EUR million 516 Staff, Finland 85

Sampo Group I Board of Directors’ Report and Financial Statements 125 parent company sampo plc’s financial statements

Notes to the balance sheet

11 Loans and advances to credit institutions R repayable EURm on demand Loans and advances to domestic credit institutions 47 Total 47

12 Loans and advances to customers EURm 2005 Impairment losses on loans and advances recognised for the year

Impairment losses at beginning of year – + Impairment losses recognised on individual loans and advances 2 – Reversals of impairment losses recognised for individual loans and advances – Impairment losses at end of year 2

13 Debt securities 2005 EURm listed other total Issued by public bodies For trading purposes – 1 1 Government bonds – 1 1

Other – 132 132 Available for sale – 132 132 Bonds issued by other than banks – 132 132

Debt securities total – 133 133 of which treasury bills and other eligible bills – – – of which the total amount of those on which interest is not accrued – – – of which the amount of subordinated debt securities – 132 132

14 Shares and participations 2005 EURm listed other total Shares and participations Available for sale 3 48 51 Shares and participations in Group companies – 3,157 3,157 Shares and participations in associates 16 1 18 Total 19 3,207 3,226 of which at cost 16 3,159 3,175 of which in credit institutions – 787 787

15 Derivative financial instruments 2005 notional remaining maturity Fair value EURm Less than 1 year –5 years over 5 years positive negative For hedging purposes Interest rate derivatives Interest rate swaps 4 618 11 2 – Counterparty to the contracts is Sampo Bank plc.

126 Sampo Group I Board of Directors’ Report and Financial Statements 16 Movements in intangible assets during the year 2005 I information EURm technology other Cost at beginning of year 29 10 Additions – 8 Disposals 0 0 Amortisation according to plan –4 –2 Accumulated amortisation at beginning of year –4 –2 Accumulated impairment losses at beginning of year –9 – Carrying amount at end of year 11 14

17 Property, plant and equipment 2005 C carrying fair EURm amount value Land and buildings Occupied for own activities 5 6 Other 9 9 Total 15 15

Shares and participations in property companiest Occupied for own activities 8 7 Other 8 8 Total 16 15

Classification between those occupied for own activities and for other is based on the area in Group’s use.

18 Movements in property, plant and equipment during the year 2005 I investment other pro- property and perty and shares in shares pro- EURm property comp. perty comp. equipment Cost at beginning of year 84 21 11 Additions 1 0 0 Disposals –49 –6 – Transfers to and from items 0 0 – Depreciation according to plan 0 0 –1 Impairment losses and reversals –2 1 – Accumulated depreciation and impairment losses on disposed and transferredd items 1 0 – Accumulated depreciation at beginning of year –1 –1 –5 Accumulated impairment losses at beginning of year –17 –1 – Carrying amount at end of year 17 14 5

19 Other assets EURm 2005 Dividend receivable 22 Other 52 Total 74

20 Prepayments and accrued income EURm 2005 Accrued interest 23 Other 0 Total 24

Sampo Group I Board of Directors’ Report and Financial Statements 127 parent company sampo plc’s financial statements

21 Deferred tax assets and liabilities EURm 2005 Deferred tax assets Timing differences 16 Fair value reserve 3 Total 20

Deferred tax liabilities Timing differences 5 Total 5

22 Debt securities in issue 2005 C carrying nominal EURm amount amount Commercial paper 149 149 Bonds and notes 290 290 Total 438 440

23 other liabilities EURm 2005 Unredeemed dividends 35 Other 14 Total 49

24 Accruals and deferred income EURm 2005 Deferred interest 23 Other 20 Total 43

25 Subordinated liabilities EURm 2005 Subordinated liabilities with a carrying amount more than 10% of the total amount of such liabilities 597 Other subordinated liabilities – Total 597 of which perpetuals – Due to Group companies – Due to associates –

nominal carrying interest maturity Issuer Value amount rate *) date Sampo plc 600 597 4.625 21 Apr. 2014

*) Interest rate 4.625% until 21 April 2009 and after that 3-month Euribor plus 2.97%.

Repayable on interest payment date in April 2009 and after that on any interest payment date in January, April, July and October.

128 Sampo Group I Board of Directors’ Report and Financial Statements 26 Assets and liabilities by remaining maturity EURm 2005 Assets 180

Less than 3 months 47 Loans and advances to credit institutions 47

3–12 months –

1–5 years –

Over 5 years 132 Debt securities 132

Liabilities 1,135

Less than 3 months 141 Liabilities to customers 7 Debt securities in issue 134

3–12 months 21 Liabilities to customers 7 Debt securities in issue 15

1–5 years 342 Liabilities to customers 53 Debt securities in issue 290

Over 5 years 630 Liabilities to customers 33 Subordinated liabilities 597

27 Assets and liabilities denominated in euro and in other currencies 2005 T to or from O other Group EURm euro currencies total companies Assets Loans and advances to credit institutions 47 – 47 47 Debt securities 132 1 132 132 Derivative financial assets 2 – 2 2 Other assets 1,497 1,907 3,405 3,242 Total 1,678 1,908 3,586 3,422

Liabilities Liabilities to customers 99 – 99 – Debt securities in issue 438 – 438 6 Subordinated liabilities 597 – 597 Other liabilities 98 0 98 12 Total 1,233 0 1,233 17

Sampo Group I Board of Directors’ Report and Financial Statements 129 parent company sampo plc’s financial statements

28 Fair value measurement using other than quoted prices Methods used in fair value measurement are disclosed in Group accounting policies.

29 Movements in the parent company's equity in the year ended 31 December 2005 share fair share premiums legal value other retained EURm capital account reserve reserve reserves earnings total Carrying amoun at 1 Jan. 2005 95 1,019 366 –10 273 303 2,046 Subscription for shares with options 1 29 30 Dividends –113 –113 Recognition of undrawn dividends 4 4 Change in fair value 1 1 Treasury shares –88 –88 Profit for the year 474 474 Carrying amount at 31 Dec. 2005 96 1,048 366 –9 273 580 2,354

Fair value reserve at 1 Jan. 2005 Financial assets available for sale –13 Deferred tax assets 3 Total –10

Retained earnings at the beginning of year as in the previous financial statements 288 Valuation of hedging instruments and hedged items 1 Transfer of the negative fair value of available for sale financial assets into fair value reserve 20 Deferred tax –5 Retained earnings at 1 Jan. 2005 303

Distributable equity at 31 Dec. 2005 Parent company Profit for the year 474 Retained earnings 106 Other reserves 273 Total 853

Group Profit for the year 949 Retained earnings 1,128 Other reserves 335 Total 2,412 Undistributable items –395 Distributable equity total 2,017

30 Share capital Information on share capital is disclosed in Note 34 to the consolidated financial statements.

31 Share issues, option rights and issue of convertible bonds Information is disclosed in Note 34 to the consolidated financial statements.

130 Sampo Group I Board of Directors’ Report and Financial Statements 32 Shareholdings and principal shareholders on 31 December 2005 Shareholding Number Holders Book-entry Voting rights of shares Number % number % number % 1 – 100 13,218 23.0 882,614 0.2 882,614 0.2 101 – 500 27,040 47.0 7,315,658 1.3 7,315,658 1.3 501 – 1,000 8,189 14.2 6,538,679 1.1 6,538,679 1.1 1,001 – 5,000 7,375 12.8 16,061,461 2.8 16,061,461 2.8 5,001 – 10,000 905 1.6 6,588,812 1.2 6,588,812 1.1 10,001 – 50,000 623 1.1 12,431,992 2.2 12,431,992 2.2 50,001 – 100,000 77 0.1 5,631,188 1.0 5,631,188 1.0 100,001 – 500,000 81 0.1 17,680,415 3.1 17,680,415 3.1 500,001 – 39 0.1 490,315,536 85.8 495,115,536 85.9 Total 57,547 100.0 563,446,355 98.6 568,246,355 98.6 of which in nominee register 16 276,678,657 48.4 On joint account 7,871,960 1.4 7,871,960 1.4 Total shares issued 571,318,315 100.0 576,118,315 100.0

Shareholders at 31 December, 2005 N number % of share % of A and B shares of shares capital votes Finnish State 79,280,080 13.9 13.8 Varma Mutual Pension Insurance Company 60,438,785 10.6 10.5 Wahlroos Björn 11,739,890 2.1 2.0 Stora-Enso Oyj 8,746,620 1.5 1.5 Sampo plc 7,000,000 1.2 1.2 Kaleva Mutual Insurance Company *) 6,993,855 1.2 2.0 Ilmarinen Mutual Pension Insurance Company 6,120,255 1.1 1.1 The State Pension Fund 3,900,000 0.7 0.7 OP-Delta fund 3,820,300 0.7 0.7 Mutual Insurance Company Pension-Fennia 2,915,800 0.5 0.5 The Local Government Pensions Institutions 2,389,446 0.4 0.4 Wärtsilä Corporation 1,901,000 0.3 0.3 Neste Oil Pension Fund 1,748,940 0.3 0.3 OMX Helsinki 25 Exchange Traded Fund 1,425,248 0.2 0.2 Etera Mutual Pension Insurance Company 1,407,350 0.2 0.2 Sampo Finnish Equity Fund 1,355,375 0.2 0.2 Odin Norden 1,068,900 0.2 0.2 The Finnish Natinal Fund for Research and Development, Sitra 998,000 0.2 0.2 Nordea Life Assurance Finland Ltd 909,600 0.2 0.2 Alfred Berg Finland Fund 873,170 0.2 0.2 20 largest shareholders in total 205,032,614 35.9 36.4

In the nominee register in total 276,549,664 48.4 48.0 Others in total 89,736,037 15.7 15.6

Total 571,318,315 135.9 136.4

*) 5,793,855 A shares and 1,200,000 B shares.

33 Assets pledged as collateral security 2005 O other EURm pledges mortgages securities total Balance sheet item Other liabilities – – 0 0 Pledged for own liabilities – – 0 0 Pledged for off-balance sheet items 3 – – 3 Pledged on behalf of Group companies – – – – Pledged on behalf of other companies – – – –

Sampo Group I Board of Directors’ Report and Financial Statements 131 parent company sampo plc’s financial statements

34 Pension liabilities The basic and supplementary pension insurance of Sampo plc’s staff is handled through insurances in Varma Mutual Insur- ance Company and in Sampo Life Insurance Company Limited.

35 Future rental commitments EURm 2005 Not more than one year 2 Over one year but not more than five years 6 Over five years – Total 8

36 Off-balance sheet items EURm 2005 Underwriting commitments 12 Off-balance sheet items total 12 To or on behalf of Group companies – To or on behalf of associates –

37 Other commitments Sampo plc received value added tax refunds in 2004 based on the Tax Office for Major Corporation’s final value added tax refund decisions. Sampo plc is the entity liable to tax in a tax group of Sampo plc for the purpose of the Value Added Tax Act. The tax refund was based on a refund application made by a member of the group.

Contrary to its previous final decisions, the Tax Office for Major Corporations made new decisions in December 2004, upon which basis it debited 33.7 million euro of previously refunded VAT in December 2004.

Sampo plc considers the Tax Office for Major Corporations’ December 2004 decisions ungrounded and has appealed the decisions to the Helsinki Administrative Court.

As the group member liable to tax Sampo plc has paid the VAT debited in December 2004 in January 2005. Accordingly, the VAT in question has been treated as debt to the taxation authority and as a receivable from the group member in the accounts for 2004.

If the decisions made by the Tax Office for Major Corporations in December 2004 remain final despite the appeals process, the net effect in Sampo Group is at most estimated to be approximately 26 million euro.

Staff and management

38 staff numbers 2005 A average change dur- during the year ing the year Full-time staff 83 +2 Part-time staff 1 – Temporary staff 1 – Total 85 +2

39 Management's salaries, fees and pension benefits EUR thousand 2005 Managing Director and Debuty Managing Director Managing Director Björn Wahlroos 2,324 Deputy Managing Director Kari Stadigh 1,445

Members of the Board of Directors Olli-Pekka Kallasvuo 63 Jyrki Juusela 51 Tom Berglund 41 Anne Brunila 39 Georg Ehrnrooth 40 Christoffer Taxell 39 Matti Vuoria 41

132 Sampo Group I Board of Directors’ Report and Financial Statements Pension benefits The retirement age of the Managing Director and the Deputy Managing Director is 60 years, when the pension benefit is 60% of the pensionable salary.

Loans EURm 2005 Balance at beginning of year 8 Additions 2 Repayments 0 Balance at end of year 10

Notes on shares held

40 Shares held P percentage carrying of share amount capital held *) eURm Subsidiaries Banking Sampo Bank plc, Helsinki Finland 100.00 787

P&C insurance If Skadeförsäkring Holding AB, Stockholm Sweden 100.00 1,886

Life insurance Sampo Life Insurance Company Ltd, Helsinki Finland 100.00 484

Property company Kiinteistö Oy Hervannan Tieteenkatu 1, Tampere Finland 100.00 1

Other Satura Oy, Helsinki Finland 100.00 1 Primasoft Oy, Espoo Finland **) 20.00 (30.00) 1

*) Percentage of the voting rights held is presented in brackets, if it differs from that of the shares held.

**) Sampo Group holds 40% of the share capital and 60% of the voting rights.

Information on associates is disclosed in Note 20 to the consolidated financial statements.

Other information

41 Information on credit institutions within the Group The Parent Company of Sampo Group is Sampo plc, whose registered office is in Helsinki. Copies of the consolidated financial statements of Sampo plc are available on request by post from: Unioninkatu 22. FI-00075 SAMPO

Helsinki, 15 February 2006

SAMPO OYJ Board of Directors

Anne Brunila Tom Berglund Georg Ehrnrooth

Jyrki Juusela Matti Vuoria Christoffer Taxell

Olli-Pekka Kallasvuo Björn Wahlroos Chairman Group CEO

Sampo Group I Board of Directors’ Report and Financial Statements 133 Auditor’s report

To the shareholders of Sampo plc We have audited the accounting records, the financial statements and the administration of Sampo plc for the financial year 2005. The Board of Directors and the Managing Director have prepared the Report of the Board of Directors and the consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the EU and the parent company’s financial statements prepared in accordance with prevailing regulations in Finland, that includes parent company’s balance sheet, income statement and the notes to the financial statements. Based on our audit, we express an opinion on the consolidated financial statements, the parent company’s financial statements and on the administration of the parent company.

We have conducted the audit in accordance with Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the management as well as evaluating the overall financial statements presentation. The purpose of our audit of administration is to examine that the members of the Board of Directors and the Managing Director of the parent company have complied with the rules of the Companies’ Act.

Consolidated financial statements In our opinion the consolidated financial statements prepared in accordance with Inter- national Financial Reporting Standards as adopted by the EU give a true and fair view, as referred to in the International Financial Reporting Standards as adopted by the EU and defined in the Finnish Accounting Act, of the consolidated result of operations as well as of the financial position. The consolidated financial statements can be adopted.

Parent company’s financial statements and administration In our opinion the parent company’s financial statements have been prepared in accordance with the Finnish Accounting Act and other rules and regulations governing the preparation of financial statements in Finland. The financial statements give a true and fair view, as defined in the Finnish Accounting Act, of the parent company’s result of operations as well as of the financial position. The financial statements can be adopted and the members of the Board of Directors and the Managing Director of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the distribution of distributable funds is in compliance with the Companies’ Act.

Helsinki 1 March 2006

ERNST & YOUNG OY Authorised Public Accountant Firm

Tomi Englund Authorised Public Accountant

Translation of a Finnish original

134 Sampo Group I Board of Directors’ Report and Financial Statements Sampo Group I Board of Directors’ Report and Financial Statements 135 Contact Information

Sampo plc

Visiting address Unioninkatu 22, Helsinki, Suomi Postal address FI-00075 SAMPO, FINLAND Telephone +358 10 515 15 Fax +358 10 516 0051 Internet www.sampo.com E-mail [email protected]

The contact information for Group subsidiaries is available at the Internet address: www.sampo.com/contacts The contact information for subsidiaries providing banking and long-term savings services is also available in the Review’s part for ’Banking and Long-term Savings’. The contact information for subsidiaries providing P&C insurance services is available in the Review’s part for ’If P&C Insurance’.

Investor Relations

Jarmo Salonen, Head of Investor Relations Telephone +358 10 516 0030 Fax +358 10 516 0605 E-mail [email protected]

Peter Johansson, Group CFO Telephone +358 10 516 0010 Fax +358 10 516 0016 E-mail [email protected] Shareholders Services E-mail [email protected] Telephone 010 513 6033 ja 010 513 6034 Fax 010 513 2744

Group Communications

Hannu Vuola, Head of Group Communications Telephone +358 10 516 0040 Fax +358 10 516 0051 E-mail [email protected]

136 Sampo Group I Board of Directors’ Report and Financial Statements Personal Notes Sampo will publish three Interim Reports in 2006

: Bellcrest-Translations Ltd, Tmi Tina Tmi Ltd, Bellcrest-Translations : ranslation T

Tapani Kyrki (cover and case, Sampo Group Review), Olli Pulkkanen (cover, Banking and Banking (cover, Pulkkanen Olli Review), Group Sampo case, and (cover Kyrki Tapani : : : Libris, Helsinki 2006 | Sampo plc, registered domicile Helsinki, business ID 0142213-3 ID business Helsinki, domicile registered plc, Sampo | 2006 Helsinki Libris, : : Horst Neumann and Petri Artturi Asikainen | | Asikainen Artturi Petri and Neumann Horst : rinting P

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: Miltton Oy | Oy Miltton : oncept, graphic design and layout and design graphic oncept, C | Sandberg Olof Språkkonsult, Uddevalla Pettersson-Mäki, | Insurance) P&C If (cover, Ervasti Maria Savings), Long-term BANKING AND LONG-TERM SAVINGS 2005 SAVINGS LONG-TERM AND BANKING

There’s tough competition for customers between banks... Sampo Group

Sampo is a financial services group comprising • If, the leading P&C insurance company in the Nordic countries • Sampo Bank, an expert in retail and corporate banking services for customers in Finland and the Baltic countries • Sampo Life, an expert in life and pension insurance products for customers in Finland and the Baltic countries • Sampo Group also operates under brand names such as Arvo Asset Management, Realty World (Kiinteistömaailma), Mandatum and Volvia.

Sampo Group’s core businesses are banking, long-term savings and property and casualty insurance.

P&C insurance

RoE 24.1% anking and investment services Combined ratio 90.5% Ba RoE 23.1% If P&C Insurance is the leading property and Cost to income ratio 57.3% casualty insurance company in the Nordic countries, with approximately 3.6 million customers Sampo Bank provides banking services and and a staff of about 6,600 people. In 2005, If’s services required for managing money affairs total premiums written were EUR 4 and financially securing the future for billion. If offers P&C insurance retail, corporate and institutional in Finland, Sweden, Norway, customers. About 1,1 million Denmark, Estonia, Latvia retail customers and almost and Lithuania. 100,000 corporate and institutional customers use these banking and long-term savings services. Sampo’s bank- RoE 28.4% ing and investment services Earning per share, EUR 1.68 Profit before taxes EURm 1,295 ife insurance employ about 4,200 people and Li are available in Finland, Swe- RoE 39.0% den, Estonia, Latvia and Lithuania. Expense ratio 93.4% Sampo is also well-known to Finnish customers for its Mandatum brand in asset Sampo Life specialises in life and pension insurance, management, private banking, corporate with operations in Finland, Sweden, Norway, Estonia, Latvia finance and stock brokerage. Some of the and Lithuania. Sampo employs approximately 370 people in mutual funds also still bear the name Manda- its life and pension insurance businesses. tum. In real estate, Realty World (Kiinteistö- maailma) offers real estate agency services for houses and apartments on our behalf all over Finland.

Group profit before taxes Sampo Group staff per country, per cent

EURm Lithuania 4% Latvia 1% 1,200 Others 1% 1,000 Estonia 8% 800 Denmark 3% 600 400 Norway 15% Finland 52% 200 0 Banking Life If P&C Other Sampo Sweden 16% and Insurance Insurance Group Investment Services ...and we succeeded. We accepted the challenge, and this is the result: Our share of the Finnish housing loan market´s growth increased to per cent 23 (14).

Contents

2 President’s Review 15 Corporate Finance 4 Banking 16 Sampo in the Baltic Countries Retail Customers 18 Staff 7 Realty World (Kiinteistömaailma) 20 Corporate Responsibility 8 Banking Corporate and Institutional Customers 21 Segments Profit and Loss Account 11 Long-term Savings 23 Segments Balance Sheet Life Insurance 25 Contact Information Mutual Funds Asset Management Brokerage

President’s Review

Sampo | Banking and Long-term Savings 2005 The world over, banks are generally This policy of ours differed distinctly appreciable growth in our market share. product-oriented. Their service is pas- from that of any of our competitors, and We also substantially bolstered our sive, bureaucratic and slow. At the same we believe that customers choosing position as a bank for all sizes of com- time, however, many other fields have this loan will, in years’ after, be pleased panies and entrepreneurs. Sampo Life reorganised their operations in line with with the savings in their loan manage- was particularly successful in the cor- what customers feel benefits them the ment expenses. We also encouraged porate customer segment and further most. We may ask, have banks been our numerous corporate customers to reinforced its already solid position as developed mainly to generate benefit for pay attention to the historically low price the leading provider of corporate life and themselves, instead of their customers? of debt finance and expand their opera- pension insurance in Finland. We at Sampo are committed to act tions through acquisitions or mergers. In Our growth and expansion was differently. Our mission is not to build a 2005, we were the number one bank in vigorous outside Finland as well. The slightly better bank, but a service com- Finland in both financing and advising of Baltic banks’ business grew in almost pany, passionate to improve the lives of acquisitions. all product segments, totally by over 60 its customers. Our service promise was also per cent, and despite expansion-related In the future, I believe that bank manifested in investment services and investments, their profitability improved customers will demand better service in long-term saving. During the past two substantially. Sampo Life set up a branch two areas in particular. to three years we have been bolder office in Oslo to enable our participa- First, banks should be able to than our competitors in recommending tion in Norway’s new employee pension actively offer their customers solu- mutual fund and life insurance products system. The bank’s Stockholm branch, tions that customers will find financially that benefit from rising share prices. We established mainly for our corporate beneficial, even after many years. The at Sampo are pleased to see that those customers, commenced in September. bank needs to have an opinion and the customers who followed our advice In the autumn we also announced that courage to communicate this to the again increased their assets in 2005. we are preparing to initiate banking customer, even though selling this type activities in Russia. There, too, we are of solution might prove a little more diffi- Extremely good performance interested in serving Nordic corporate cult. The benefit gained by the customer At Sampo, we believe that putting a customers expanding to this area, and from the bank must no longer concen- strong emphasis on customer benefit we believe that our successful Baltic trate on discounts or bonuses – they are is not in conflict with achieving a good operating concept will, in due course, be minor issues compared with whether the business result – quite the contrary. In useful for Russian retail customers as major financial decisions made by the 2005, we attained our best operating well. customer are right, or not. result ever, even though the prevail- Secondly, the bank’s service must ing low interest rates weaken banking Will to win be fast and smooth under all circumstan results and hard competition has nar- Although our significant growth in 2005 ces. The bank needs to get the job done. rowed loan spreads. was partly driven by the market, our These two service promises are The operating profit of banking was staff’s will to win was just as important. summed up in our motto: From idea to EUR 315 million and the return on equity I am extremely proud of our team. Look- action! In other words – beneficial solu- exceeded 23 per cent. Behind the excel- ing ahead to the year 2006, I am con- tions, carried out promptly and fast. lent operating result is strong business vinced that our progress will continue. growth, cost-efficient operations and a The outlook for banking and long-term Benefit for the customer high-class loan portfolio. Sampo Life’s savings is positive, and I doubt that How did our service promise play out in operating profit reached EUR 245 mil- anyone else can match our strong will practice in 2005? For example, in Janu- lion. The result was boosted not only by to create benefit for more and more ary we promised to issue housing loan surging investment markets but also by customers, while still achieving a com- decisions in less than one hour, without greater operating efficiency and rapidly mendable result. exception. This was very useful for our growing customer assets. homebuyer customers. In 2005, Sampo was the supreme winner in the Finnish A year of strong housing loan market. growth and expansion In September, we introduced the Although we had set tough growth tar- “Boring” Housing loan – in other words, gets in banking and ong-term saving we openly and directly encouraged our for Finland in 2005, the results still took customers to link their housing loans to us by surprise. The bank’s housing loan Mika Ihamuotila a long-term fixed interest rate, because portfolio increased by more than 26 per President and CEO we expected the interest rates to go up. cent due to high market demand and Sampo Bank plc

Sampo | Banking and Long-term Savings 2005 Banking: Retail customers

Retail Customers

Sampo Bank aims to help In recent years, Sampo Bank’s Personal ning solutions together with a specialist ease the lives of Finns and Financial Plan has become an effective ensures that customers are aware of the provide workable solutions tool for bank-customer co-operation. financial possibilities, no matter whether for their everyday financial Through this service the bank can quick- they are related to housing, leisure or needs. 130,000 customers ly respond to evolving customer needs planning for the future. The aim is to have already drawn up a and oversee the customer’s financial improve the quality of the customer’s Personal Financial Plan. plans far into the future. life. Customers have indeed found The Personal Financial Plan con- that the Personal Financial Plan is an tinued to thrive in 2005, surpassing the excellent way to plan their finances and magic figure of 100,000 completed plans appreciate the uniqueness of the service in April. Increasing numbers of custom- compared with the competition. At the ers wish to update their plans annually, same time, most customers have opted and in the future the bank’s specialists to expand their use of Sampo Bank’s will be able to provide them with more services. comprehensive services. In developing the Personal Financial Sustained success for the Plan, Sampo Bank has focused on find- Personal Financial Plan ing solutions for the financial needs of Through the Personal Financial Plan, customers at different stages of their customers are able to concretely identify lives. their personal financial needs. Plan-

Sampo Bank expanded its branch network in the greater Helsinki area. Mika Lehtiniemi, Bank Manager, and Katri Salminen, Finance Manager, are on hand to serve customers at the Sampo Bank branch opened in October at the Jumbo shopping centre in Vantaa. Four other sales or service points were also opened in the Greater Helsinki area.

Sampo | Banking and Long-term Savings 2005 Housing loans the Branch network A housing loan success story of the year expanded in Greater decision in one hour Many housing loan applicants One of Sampo Bank’s focal areas dur- Helsinki consider it vital to plan their ing the year was the provision of bet- In 2005, Sampo Bank finances carefully so that all ter, more flexible and faster service for opened a new branch is in good order, even before housing loan customers. In January, the office at the Jumbo shopping centre in they have found a new home. When buying a bank launched a new service, promis- Vantaa, and four sales or service points house or apartment it is also important to get ing housing loan decisions in one hour! in other locations in the Greater Helsinki a realistic idea of the amount and terms of a In autumn, the bank began to market a area. potential loan as quickly as possible. new housing loan dubbed “Boring” with Sampo Bank also co-operated Sampo Bank took on this challenge in January a safe, fixed rate of interest that keeps closely with Realty World (Kiinteistö- 2005. Now the branches can make decisions customers free of interest rate risk for maailma) by combining services in on housing loans independently and faster up to 20 years. many locations under one roof, so that than ever. At the same time, they are ready to make an entirely new kind of service promise. The focus on better service and the customers could do their banking and provision of new safe options reinforced home seeking at one stop. The process Sampo promises to make housing loan decisions within one hour of negotiations ending. customers’ trust in Sampo Bank. In of renovating and standardising branch However, this speedy service is not intended to 2004, the housing loan portfolio in Fin- offices in line with the Sampo Bank bind customers; instead, they can take their land increased 26 per cent and the mar- brand, commenced a few years ago, was time to weigh all the facts and devote more ket share went up from 14.3 per cent to continued. time to planning their new home. 15.5 per cent. The integration of retail and corpo- Customers are protecting them- rate customer branch offices that was selves against the risks of loan man- started last year continued in many loca- agement by a loan insurance policy. An tions and proved an excellent solution. essential part of loan negotiations with The integration of offices creates a more customers is advising on how to prepare flexible service model, in which special- for unexpected events. About 40 per cent ists in the different areas of banking and of all housing loans granted by Sampo long-term savings can be more readily Bank were covered by a loan insurance contacted. policy.

Our housing loan portfolio increased by 26 per cent – clearly

faster than the

market.

Sampo | Banking and Long-term Savings 2005 Banking: Retail customers

Web bank became a trading place During the year, online securities brokerage services were made more Although the significance of doing one’s customer-friendly by simplifying book- banking in the branch network is grow- entry account pricing, improving the Mandatum Private Bank ing, the web bank is increasingly being quality of trading both technically and continued strong growth used as a trading place. The number service-wise, and expanding domestic In 2005, the assets under Mandatum Private of web bank transactions continued to research and analysis. The number of Bank’s management increased by over 30 grow rapidly throughout the year, and per cent. The previous year’s drive to develop Internet investor agreements increased web bank communications between discretionary services was successful, as by almost 100 per cent, and Sampo Bank the customer and the bank increased these accounted for a large part of the growth has become an obvious alternative for as well. Almost 90 per cent of all daily achieved in 2005. those with investments or savings in retail transactions took place in the web Mandatum Private Bank, which is part of securities. bank. Nevertheless, service availability Sampo Bank, offers private wealth manage- In 2005, the telephone sales service remained at over 99 per cent and much ment and banking services to individuals and focused on credit card and consumer attention was paid during the year to companies in its ten branches around Finland. credit products. Approximately 40 per ensuring the security of the web bank. In addition, the Private Bank includes a Family cent of new sales of credit card and Office, set up to provide a comprehensive ser- The strong demand for housing loans, consumer credit products took place vice for family groups. consumer credits and mutual funds was through Sampo Bank’s telephone ser- The Private Bank’s comprehensive service also reflected in the web bank. vice. In addition to normal selling, the concept is intended to offer customers a wide Loan and card applications telephone service arranged new cus- variety of opportunities in banking, funding and increased substantially, as did the use of tomer appointments at branch offices in financial services through its personal service. bank overdrafts and consumer credits. the main population centres and Greater The Private Bank’s services also include legal Certain financial management tools Helsinki area. counselling in taxation, and family and inheri- were introduced in the web bank that tance rights issues. allow customers to classify their expenditure in order to monitor it more closely.

Number of customers with Number of customers continuous fund saving Housing loan portfolio, Private Bank: assets under taking loan insurance agreements EURm management, EURm

60,000 150,000 8,000 2,000

120,000 45,000 6,000 1,500

90,000 30,000 4,000 1,000 60,000

15,000 2,000 500 30,000

0 0 0 0 01 02 03 04 05 01 02 03 04 05 01 02 03 04 05 01 02 03 04 05

Sampo | Banking and Long-term Savings 2005 Realty World (Kiinteistömaailma)

Realty World (Kiinteistömaailma) portrayed the many facets of this work in continued its vigorous growth. a very human and credible way. The chain’s brokerage revenue increased by 21 per cent in 2005. 104 real estate agencies in 52 localities The central unit of Realty World is The demand for apartments remained owned by Sampo Bank. The operations strong all year. In 2005, Realty World’s of the Realty World chain are based brokerage revenue increased by 21 per on a franchising concept, in which all cent on the previous year. The chain the real estate agencies in the chain brokered a total of 14,000 real estate are independently owned and operated transactions, which is an increase of 12 firms. The service combines the econo- per cent over the previous year. Realty mies of scale of a large chain with the World is Finland’s second largest real entrepreneur’s motivation to serve cus- estate agency chain. The target of mar- tomers individually and efficiently. The ket leadership is coming closer. chain concept also allows countrywide Realty World celebrated its 15th joint marketing and sales, and provides anniversary in May. During this time, customers with a uniform package of Realty World has changed the Finnish services. real estate business by, for example, At the end of the year, the Realty bringing real estate agencies to the World chain comprised 104 franchised street level and publishing sales infor- real estate agencies in 52 localities. The mation and photos on the Internet. In Realty World chain employed 650 people. 2005, three-dimensional layout images The strengthening of co-operation and 360-degree virtual presentations of between local real estate agents and the apartments for sale became increasingly Sampo Bank branches continued as in common. The Kodinkoneturva domestic previous years. In many locations, this appliances insurance policy, developed was reinforced by combining services together with If P&C Insurance, became under one roof, allowing customers to established as a benefit for home take care of their banking and home buyers. seeking at one stop. The Finnish Franchising Associa- tion elected Miika Muroma, Realty World franchise entrepreneur, as Finland’s franchising entrepreneur for 2005. The real estate agency located at the Sello shopping centre has grown to become the largest agency in the chain in less than three years. The franchising entrepreneur has been actively involved in various Realty World chain development projects and has also heavily invested in training for himself and his staff. Realty World awarded actor Kari Väänänen for his role as real estate agent Jarmo Kesämaa in the film Trench Road (Juoksuhaudantie). Kari Väänänen, who received a bronze statuette of a real estate agent by sculptor Rauni Liukko,

Sampo | Banking and Long-term Savings 2005 BANKING: CORPORATE AND INSTITUTIONAL CUSTOMERS

Corporate and Institutional Customers

Mergers and acquisitions and sinki, Tampere and Oulu. They annually Sampo Bank’s web services are new SME customers boosted negotiate the payments and investment based on the bank’s competence, inno- sales in corporate business. service needs of over 20,000 corporate vation and long-term commitment. As customers in co-operation with the before, Sampo Bank was a desired part- branches and, when necessary, they direct ner for its customers and many other Sampo’s core expertise in corporate customers to personal meetings to dis- stakeholders also in 2005. The web and customer business includes financ- cuss matters such as financial services. payments solutions designed drew on ing, payments, cash management and Activity in the mergers and acquisi- the bank’s knowledge of customer oper- investment services. But other services tions market was very busy during the ations, processes and needs. related to corporate management and year. Sampo Bank was Finland’s lead- 2005 was also an active year with staff incentive systems, ownership ing provider of finance and acted as the respect to the introduction of web-based arrangements, life insurance and the mandated lead arranger in the corporate invoicing and online salary payments for management of property and casu- restructuring of Tradeka, Loparex and A- corporate customers. The number of alty risks, offered together with Sampo Katsastus, for example. During the year, parties involved and the volumes of web- Group’s other businesses, are also an Sampo Bank participated in a significant based invoicing increased. The largest integral part of service packages offered number of mergers, acquisitions and invoice recipients have paved the way to customers. other restructuring. for web-based invoicing, which has thus Sampo’s corporate banking serves became established as a cost-efficient almost 100,000 companies and insti- Electronic financial tool. Sampo Bank offered web-based tutions in Finland. The banking and administration won invoicing tools, plus any necessary insurance needs of companies, entre- international award accessories (such as scanning and print- preneurs and their families are attended During the year, significant improve- ing services) to all sizes of corporate to through a countrywide sales network ments were made and security features customers. and telephone and internet services. were added to Sampo Bank’s web bank. 2005 was also a year of preparing Sampo Bank’s corporate branch Over the past ten years, Sampo Bank has consumers for web-based invoicing. The network comprises 15 corporate systematically developed and expanded web-based invoice for consumers will branches located in the largest Finnish its web services for corporate custom- be a serious alternative for companies, cities, a number of small business (SME) ers. The web bank offers companies of especially in view of pending European branches specialising in the banking and all sizes a highly functional and extensive payments regulations affecting Finland. insurance needs of small businesses, desktop. Agreement numbers and volumes of and the 56 Sampo branches located Sampo Bank won an international the certification service and other web- around Finland which serve both retail award from The Banker magazine, which based services offered by Sampo grew and corporate customers. The new ope is part of the Financial Times group. rapidly during the year. rating concept, the new small business Sampo’s Netvisor eAccounting service Sampo Bank will continue to sup- branches and the Sampo branches have was awarded as the best network service port its customers by introducing web gained plenty of new customers and solution provided by a retail customer services and expanding the available participated in corporate restructuring bank in 2005. In conjunction with the services in the coming years. on a countrywide scale. introduction of web-based invoicing, an Sampo Agreement – for small Sampo Bank’s corporate banking increasing number of entrepreneurs, companies, entrepreneurs business was expanded in 2005. Two new companies and business chains now corporate branches specialising in the also utilise electronic financial admin- and their families banking and insurance needs of small istration, benefiting from its ease of use In autumn, Sampo Bank, Sampo Life and businesses were established in Hel- and the resulting increased competitive- If together launched a new service pack- sinki – one at Pitäjänmäki and another ness. Ownership, sales and marketing age aimed at small businesses. Called at Itäkeskus. Additionally, Sampo Bank of the Netvisor service were transferred the Sampo Agreement, it incorporates reinforced its mergers and acquisitions during the year to the Passeli companies tailored solutions for the entrepreneur’s concept by signing a co-operation agree- that boast a large pool of financial man- banking and insurance needs. The Sam- ment with Suomen Yrityskaupat Oy. agement software customers in Finland. po Agreement features products from all Telephone sales units specialising in Sampo Bank provides Netvisor’s certifi- Sampo Group companies. corporate customers are located in Hel- cation service.

Sampo | Banking and Long-term Savings 2005 The basic idea of the Sampo Agree- Corporate customer ment is to evaluate the customer’s per- assets increased sonal finances and business needs with- We were the out fees and commitments. The Sampo Corporate customer assets Agreement is then compiled to meet increased by over 10 per leading arranger of the customer’s needs at that particular cent in 2005, with the fast- moment and it can be adapted as the est growth being in mutual company grows. funds. The number of cus- buy-out financings Sampo Agreement customers tomers also increased during are assigned their own Sampo contact the year. person, through whom all services are Sampo Bank’s fixed in Finland. readily available in one place. Customers income funds succeeded well can access all services under the Sampo in both domestic and inter- Agreement via Sampo’s web bank. national comparisons. Cus-

The Sampo Agreement, jointly introduced in the autumn by Sampo Bank, Sampo Life and If, is aimed at small businesses and incorporates tailored solutions for the entrepreneur’s banking and insurance needs. Tytti Kumpulainen, Bank Manager, is at the service of customers at the Pitäjänmäki corporate branch in Helsinki.

Sampo | Banking and Long-term Savings 2005 BANKING: CORPORATE AND INSTITUTIONAL CUSTOMERS

tomers were offered a new alternative of Sampo acted as the mandated lead higher-risk fixed income funds. arranger in over one-third of these, Sampo Bank is a leader in the sale retaining its position as one of the of capital-guaranteed loans to compa- top mandated lead arrangers of nies, and the demand for these products medium-sized syndicated loans. Due experienced vigorous growth late in the to the favourable market situation, the year. loans were mainly used to re-finance existing corresponding arrangements. Sampo Finance continued The previous years’ record figures its strong growth were not reached in European corporate Sampo Finance’s leasing and hire-pur- bonds, despite the low interest rates and chase financing experienced strong spreads. Nearly EUR 200 billion worth of Sampo Bank plans to start growth all year, with particular success corporate bonds were issued in Europe. banking operations in Russia achieved in financing for car sales. As a Sampo Bank retained its position as In October 2005, Sampo Bank began prepa- result, the relative share of consumers in the market leader in Finnish corporate rations to commence banking operations in issues. the customer base is on the increase. In Russia. The goal is to offer selected banking customer service development, the focus Activity in the buy-out mergers and services to Nordic companies and Russian was on the diversification of web serv- acquisitions market continued to be retail customers. ices. During the year, Sampo Finance intense. Sampo became the leading pro- In serving retail customers, Sampo Bank will also introduced a new management vider of financing for buy-outs and acted focus especially on housing loans, the demand system for hire-purchase contracts. In as the mandated lead arranger in the for which is expected to grow substantially in the future, Sampo Finance will focus on financing of 11 buy-out transactions. the coming years. increasing its market share through new product concepts.

The market leader in Finnish corporate bonds In the capital markets, 2005 was again a year of syndicated loans. Finnish companies signed new loans worth nearly EUR 14 billion, which is a new record.

Market shares of the lead managers of public bonds of Finnish issuers

Sampo 15.9 Corporate and institutional Euro-denominated loans to OKO 15.1 customers: number of web Finnish corporations, EURm bank customers Barclays Capital 7.7 Citigroup 7.7 40,000 8,000 JP Morgan 6.6 UBS 6.4 30,000 6,000 Deutsche Bank 4.3

20,000 4,000 Nordea 4.0 Dresdner 3.9 10,000 2,000 Credit Suisse 3.9

(Finnish issues excluding government issues) 0 0 01 02 03 04 05 02 03 04 05 Source: Bloomberg

10 Sampo | Banking and Long-term Savings 2005 LonG-TERM SAVINGS

Long-term Savings

LIFE INSURANCE Corporate and risk policies are major growth areas Confidence in insurance saving strengthened in 2005. Savings decisions were influenced primarily by the good performance of the investment markets and the stabilisation of legislation.

Sampo’s voluntary life and pension and was reflected in growth in premiums Growth most vigorous in insurance services are provided in Fin- written and insurance savings. Savings the corporate segment land by Sampo Life Insurance Company decisions were influenced primarily by It is increasingly common for companies Limited, in Norway by Sampo Life’s Nor- the good performance of the invest- to strengthen the commitment of their wegian branch, in Sweden by the Swed- ment markets and the stabilisation of staff through pension and risk insurance ish subsidiary If Livförsäkring Ab, and in legislation related to pension insurance policies. Premiums written by corporate the Baltic countries by local subsidiaries. savings. customers climbed by more than 70 Sampo’s Polish life and pension Overall in the life insurance sec- per cent to reach EUR 280 million. One insurance business was divested in tor, premiums written increased by significant contributor to growth was the 2005. More information on the Baltic and 10 per cent and insurance savings by decision to insure the liabilities of certain Polish life insurance services is given in approximately 12 per cent on the previ- supplementary pension funds. a separate review on page 17. ous year. Sampo Life’s premiums written Excluding the liability transfers of Customers’ interest in insurance increased by 20 per cent, double that of funds, premiums written in the corpo- saving affected the life insurance market average growth in the business. rate segment grew by about 10 per cent. for Sampo Life and the whole country

Customers’ interest in insurance saving was reflected in growth in premiums written and insurance savings for Sampo Life and for the whole Finnish life insurance market. The picture shows Iida Kaivonen, Customer Relationship Manager at Sampo Life.

Sampo | Banking and Long-term Savings 2005 11 LonG-TERM SAVINGS

We were also involved of premium income and sales in of 2006, a Sampo Life branch in Norway mainly single-premium savings also began to sell group pension insur- in looking after the policies was modest. There is ance policies to If’s corporate customers potential in the market for faster there. future of company growth, and measures to utilise In policy and claims handling, cus- this potential were initiated in tomers increasingly use telephone and employees. About 250 late 2005. web services. This is cost- and time-effi- As a result mainly of cient not only for customers, but also for companies have already the Asian tsunami disaster, Sampo Life. customers became more Sampo Life was able to increase procured an employee safe aware and sales of risk efficiency in 2005. Its expense ratio fell benefit package for policies rose. More new risk below 90 per cent, an improvement of policies were written both seven percentage points on the previous their personnel. separately and in conjunc- year. To ensure future cost-efficiency and tion with other savings, financial quality of operations, Sampo Life initi- and insurance policies than ever before. ated a systematic modernisation of its IT In particular, the Sesam group pen- Premiums written from Sampo Life’s systems. sion insurance policies that comple- risk policies increased by 12 per cent Sampo Life’s investment activities ment the pension security of key staff and totalled almost EUR 30 million. were successful, and the return at cur- members were sold at a record rate, and Sampo Life utilises a variety of sales rent values was 11.8 per cent. At the Sampo Life further reinforced its posi- channels in addition to its own resour same time, the company’s solvency ratio tion as Finland’s leading corporate life ces. In sales to retail customers, the increased to 21.3 per cent. and pension insurer. major channel in Finland and the Baltic The need to supplement statutory countries is Sampo Bank. With respect pensions was also reflected in rapid to corporate customers, If and Sampo growth in the sales of private pension Bank’s corporate branches are the most insurance policies. In total, some 12,000 significant. Other sales channels outside private pension insurance policies were the Group are also being developed. sold, which is 40 per cent more than in 2004. Almost all of these policies were Nordic growth unit-linked, in accordance with Sampo If’s clientele are potential customers for Life’s strategy. life and pension insurance in the Nordic Unit-linked insurance savings countries. In 2005, therefore, Sampo increased to EUR 1.2 billion, and unit- Life commenced sales of life and dis- linked premiums written totalled EUR ability insurance policies in Sweden in 270 million. However, the development collaboration with If Liv. At the beginning

Sampo Life’s unit-linked premiums written, EURm

1,500

1,200

900

600

300

0 01 02 03 04 05

12 Sampo | Banking and Long-term Savings 2005 Mutual funds Sampo Bank Fund assets continued to increase at a record rate provides solution for investing The assets in mutual funds administered by Sampo Fund Management in emerging increased during the year by 30 per cent to almost EUR 8.9 billion. Most markets assets flowed into Sampo’s emerging market funds. The emerging equity markets became much Sampo’s mutual funds are administered investing in Europe as well as one more popular by Sampo Fund Management Ltd. The fund investing in Finnish value stock. among inves- mutual funds’ assets are managed by With the new funds Sampo has also tors in 2005. Mandatum Asset Management Ltd, 3C increased the number of its internation- Sampo Fund Asset Management Ltd (a specialist in al partners by three new asset manag- Management absolute return strategies), Arvo Asset ers. They are HSBC Asset Management, successfully launched several mutual funds Management Ltd (a new asset manager Martin Currie Investment Management investing in emerging markets, including focusing on value stocks) and carefully and BlackRock. Mandatum Black Sea which invests mainly in Turkey, Mandatum China which invests on the selected foreign asset management The number of Sampo fund unit Chinese stock market and Mandatum Russia companies. holders rose steeply during the year Small Cap which specialises in small Russian The year 2005 was yet another from 290,000 to over 345,000. In par- companies. record breaker for Finland’s mutual fund ticular, the number of continuous fund In September 2005, Sampo Fund Management market. EUR 7.3 billion in new invest- savings customers increased, due to the launched a mutual fund which, with just one ments were made in funds registered new emerging markets’ funds. At the investment, gives access to all of the world’s in Finland. Due to the new investments end of the year, 105,000 customers had emerging equity markets, from Africa to India and the strong development of equity made a continuous fund saving agree- and from Latin America to the Middle East. markets, total fund assets in Finland ment, compared with 91,000 one year In practice, the mutual fund’s investments increased to EUR 44.7 billion. Sampo before. are carried out by dispersing assets between retained its strong market position in several emerging market funds managed by mutual funds with a 19.9 per cent (21.8) Mandatum Asset Management and carefully market share and was, as in the previous selected foreign asset managers. The Sampo year, the second-largest fund manager Emerging Equity Markets fund immediately in Finland with mutual fund assets total- gained great popularity, especially among private customers, and by the end of the year the ling EUR 8.9 billion (6.8). fund had 6,700 customers. The favourable performance of Sampo’s equity and balanced funds and the trend for new fund subscriptions to be focused on equity funds increased their share in Sampo’s mutual fund assets. At the end of 2005, Sampo Fund Management’s market share of equity funds stood at 22.1 (25.1) per cent and they contained assets of over EUR 3.6 billion (2.8). In 2005 Sampo continued its strong investment in emerging markets by launching four new equity funds: Man- datum China, Mandatum Black Sea, Mandatum Russia Small Cap and Sampo Emerging Markets. The fund selection was also augmented by two high-yield fixed income funds, one equity fund

Sampo | Banking and Long-term Savings 2005 13 LonG-TERM SAVINGS

ASSET MANAGEMENT Leading position Mandatum Asset Management strengthened its position as Finland’s leading asset manager. Assets increased to over EUR 24 billion.

Mandatum Asset Management Ltd is Core customer assets managed individuals and institutions. At the end Sampo’s asset manager for corporate by the company increased to EUR 8.3 of 2005 the assets in funds managed by and institutional customers and the billion, while other customer assets, Arvo Asset Management totalled EUR manager of most Sampo and Mandatum including Group assets, increased to 127.3 million and the funds had a total of mutual funds. EUR 15.8 billion. The total volume of 4,082 unit holders. The successful 2005 investment assets under management increased by year reinforced Mandatum Asset Man- a good 17 per cent, or EUR 3.5 billion, on 3C Asset Management agement’s position as Finland’s lead- the previous year and passed the EUR 24 3C Asset Management Ltd is Finland’s ing asset manager. While relationships billion level. leading asset manager focusing on with long-term customers grew deeper, absolute return strategies. Funds with new agreements were made with both Arvo Asset Management an absolute return objective are charac- domestic and foreign institutions. The began operations terised by the independence of returns success of the Sampo and Mandatum Arvo Asset Management Ltd, an asset from general market development, funds managed by the company also manager focusing on value stocks, active risk management and the hedging won an international award. began operations. Value stocks are of invested assets. During the year Mandatum Asset investments in publicly listed companies In particular, the popularity of fund- Management enhanced its customer whose market price is low in relation to based investing in absolute return objec- service and portfolio management by the value of equity in the balance sheet, tive funds has increased. This is indi- increasing the number of personnel. i.e. the net asset value. cated by a near doubling of the assets A new special group was created for On 21 September, 2005, the Finnish in the Eliksir fund managed by the com- investment directed at Eastern Europe. Financial Supervision Authority granted pany during 2005. The company believes Multi-management activities were Arvo Asset Management a licence to demand for absolute return objective further expanded to meet increasingly operate as an investment services firm, investment will continue, as a result of international investment needs. and, at the start of October, the company the need of institutions to spread their Significant expansion of the product took over management of the Sampo investments also to targets independent selection continued in funds, as well Euro Value mutual fund, later renamed of market trends, and the need of private as in risk management and reporting. Arvo Euro Value. In October, Sampo Fund investors to receive a higher absolute New funds were focused on limited Management launched the Arvo Finland return on their investments. special areas and especially on emerg- Value fund, which began investment At the end of 2005 the assets man- ing markets, which are attracting operations on 18 October. aged by the company totalled EUR significant investment due to their fast During 2005, value stock invest- 565 million and the funds managed by development. ment proved popular with both private the company had a total of 19,038 unit holders.

14 Sampo | Banking and Long-term Savings 2005 BrokeragE Strong profitability performance continued A favourable operating environment, expanded product portfolio and higher quality doubled operating profit.

Mandatum Securities Ltd is responsible itability performance, however, was both In 2006, Mandatum Securities will for Sampo Group’s securities brokerage the favourable market and the success further increases its focus on provid- services and investment research. of service packages targeted at Finnish ing comprehensive services for Finnish 2005 was a very positive year for the investors. Despite tighter competition, investors. Growth is expected both in equity markets. The DJ STOXX 600 index, the focus on analysis and sales quality European equities and derivatives and in reflecting the performance of European led to a strengthening of market posi- the much improved sales of structured stock exchanges, rose by 23.5 per cent. tion among Finnish investors. The trend products. As in 2005, the focus of growth Total turnover on the Helsinki Stock was very positive in domestic and Euro- in the equity markets will remain on co- Exchange increased by 24.2 per cent, pean equities, as well as in structured operation within the European Securi- almost reaching the level of the peak year products. ties Network (ESN). Brokerage services of 2000. Activity was up not only among The higher overall service qual- aimed at Finnish retail customers will be Finnish investors but also among foreign ity raised not only profitability, but also developed in co-operation with Sampo institutions, whose interest in Finnish market share. Mandatum’s share of total Bank’s branch network. domestic shares rose sharply. Low inter- turnover in the Helsinki Stock Exchange In its analysis activities, Mandatum est rates and a steep increase in corpo- rose to 3.5 per cent (3.0), and the com- Securities aims to maintain its cur- rate profits were the elements underpin- pany brokered 5.1 per cent (5.2) of total rent proactive and market-oriented ning the strong stock exchange year. transactions. Mandatum’s role in the approach. The main focus in this area, The 47 per cent climb in the rev- transactions of end investors increased too, will be on raising quality. Already in enues of Mandatum Securities’ invest- even more, as its share of trading-driven 2005 the company achieved a number ment services generated a major Nokia transactions fell from the previous of top rankings in different independent improvement in operating profit com- year’s figure of just under 2 per cent to comparisons. pared with 2004. Behind the strong prof- 1.5 per cent in 2005.

Corporate Finance It was a succesful year for Corporate Finance Mandatum held its leading position as an advisor in Finnish mergers and acquisitions.

Mandatum & Co Ltd is responsible for the active participation of private equity on Nordic stock exchanges. Sampo’s investment banking operations, investors on both the selling and buy- Mandatum’s objective is to maintain which comprise M&A advisory, capital ing side. Mandatum’s invoicing grew by its position in Finnish and Finland-relat- market transactions and general finan- about one third on the previous year. ed Nordic mergers and acquisitions and cial advisory services. In Finland, capital market transac- to improve its position in capital market The M&A markets continued to tions continued in modest quantities, transactions. grow and were again characterised by despite the healthy climb in share prices

Sampo | Banking and Long-term Savings 2005 15 BaltiC

Sampo in the Baltic countries

The significance of the Baltic The Estonian and Lithuanian Sampo po’s market share in housing loans has countries to Sampo’s operations banks both increased their customers also increased, and the company is now continued to increase in 2005. substantially in 2005. At the end of the the fourth-largest housing loan provider year, there were 129,900 customers in with a market share of 9.7 per cent. Estonia and 46,900 in Lithuania. From The number of corporate custom- The accession of the Baltic countries the beginning of the year, growth in Esto- ers increased as well in both countries. to the European Union has promoted nia was 18 per cent and in Lithuania 82 Sampo’s market share in corporate their economic growth. Sampo further per cent. lending increased in Lithuania and strengthened its position in the fast- Most of the increase came from new decreased slightly in Estonia. In addi- growing banking and long-term savings retail customers, who are the main focus tion to actively selling finance services, markets of the Baltic economies. in the Baltic countries. Housing loans, in Sampo has paid special attention in both Sampo’s Baltic banking and long- particular, grew strongly all year. In Lith- countries to promoting its payments and term savings businesses comprise its uania, Sampo’s market share grew to deposit services. As Finnish companies banks and life insurance companies in 17 per cent, making it the third-largest operating in the Baltic countries are Estonia, Latvia and Lithuania. Sampo bank in housing loans. In Estonia, Sam- also an important customer group, the Group’s general operating policies are applied in the company’s Baltic banking and long-term savings businesses. In June, Sampo announced the divestment of its Polish subsidiaries, the Sampo P.T.E. S.A. pension insurance company and the Sampo T.U. Zycie S.A. life insurance company. The official permits needed for the transaction were obtained in December.

Banking Sampo launched its banking activities in the Baltic countries by acquiring local banks in Estonia and Lithuania late in 2000 and in Latvia in 2004. Nowadays, these operations are well-established. The Estonian bank operates under the name AS Sampo Pank, and the Lithu- anian bank under the name AB Sampo bankas. In Estonia, Sampo Pank has now increased the number of its branches to 16. In Lithuania, Sampo bankas has 12 branches in the largest growth centres. At the end of the year, AS Sampo Banka (Latvia) had two branches in Riga and a 2.1 per cent market share of housing loans for private individuals. The strong performance of Sampo Banka will continue through a renewal of its IT systems Jekaterina Tomberg (left), Marje Kutser and expansion of the branch network. and Tiina Kohv, customer service clerks in The purpose of this development is a Sampo Bank branch in the old quarters of to make Sampo Banka a full-service Tallinn, Estonia, exchange currency for tour- bank for both private and corporate ists and locals. customers.

16 Sampo | Banking and Long-term Savings 2005 expansion of Sampo’s banking network increases operational efficiency. The Freestyle card becomes to the entire Baltic region has become a arrangement still requires the approval popular in Estonia key goal. of the respective authorities in each In May, Sampo Bank launched a brand new All of Sampo’s Baltic banks reported Baltic country. The arrangement has no card, named Freestyle, on the Estonian mar- a profit, and return on equity was at a effect on currently valid life policies and ket. Customers can use the card for payments particularly good level in Estonia. The requires no measures from customers. and cash dispenser withdrawals. Additionally, a credit option can be attached to the card, combined operating profit of the Baltic without collateral. The Freestyle card is only banks was EUR 14 million, while one Estonia available at Sampo Bank in Estonia for persons year ago it was at EUR 8.2 million. Sampo Elukindlustus continued to be of at least 18 years of age. Estonia’s fastest growing life insurance This card, styled with a transparent appear- Baltic life insurance clearly company.It improved its market position exceeded average growth ance, has become very popular in Estonia. in 2005 and became the country’s third- The flexibility offered by the credit option has Sampo life insurance activities grew largest life company with a market share aroused great interest, especially among youth rapidly in the Baltic countries in 2005, of 12.9 per cent. Gross premiums written and students. clearly exceeding the average growth of were up by 95 per cent on 2004. the market. Latvia Sampo Life’s Baltic subsidiaries are Sampo divested its AS Sampo Elukindlustus in Estonia, AAS In the year under review, Sampo Dzivi- Sampo Dziviba in Latvia and AB SAMPO ba’s premiums written climbed by 126 subsidiaries in Poland gyvybes draudimas in Lithuania. These per cent, and the company’s market In June, Sampo announced the divest- companies that were previously owned share expanded to 28 per cent. ment of its Polish subsidiaries, the Sam- by Sampo plc were wholly acquired by po Towarzystwo Ubezpieczen na Zycie Lithuania Sampo Life in 2004. Sampo Life had life insurance company and the Sampo already earlier assumed operational Gross premiums written of the SAMPO Powszechne Towarzystwo Emerytalnen control over them, and the transfer of gyvybes draudimas life insurance pension insurance company to Nordea legal ownership further facilitated their company in Lithuania increased by 26 Life Holding. The transaction was car- development. per cent. The company’s share of the ried out in December, after the neces- The bankassurance concept has Lithuanian life insurance market rose to sary official permits were obtained. been developed further, and new sales seven per cent. originating from banks already account for some 50 per cent of all new life insurance sales in the Baltic countries. All of the Sampo Life companies focus on selling unit-linked products, with the Latvian subsidiary becoming the first in its market to introduce unit- linked sales in 2004. Sampo is the third largest provider of unit-linked products Banks in the Baltic Banks in the Baltic Banks in the Baltic in the Baltic market. countries, EURm countries, cost to income countries, return on The combined staff of the Baltic life loans and deposits ratio, % equity (RoE), % companies is approximately 100 people. 1,600 100 16 On average, half are working in sales or customer service jobs. 1,200 75 12 In December 2005, Sampo Life’s Board of Directors made a decision to 800 50 8 combine all the Baltic subsidiaries into 400 25 4 one legal entity by forming SE Sampo

Life Baltic. The arrangement stream- 0 0 0 02 03 04 05 01 02 03 04 05 01 02 03 04 05 lines and strengthens the structure of Loans, growth 61 % the Baltic life insurance activities and Deposits, growth 42 %

Sampo | Banking and Long-term Savings 2005 17 STAFF

Staff

Development of staff Working in conjunction with the menced in a number of units. As a result competence continued. business areas, Human Resources Man- of such projects, subsidised sports activ- agement launched projects to develop ities have increased substantially. competence management. The objective Research has shown that the qual- Systematic efforts to develop staff com- is to use customer feedback and the ity of indoor air is one of the key factors petence continued in all business areas. discussions on personal objectives and affecting job satisfaction and productiv- In the retail customer business, the development to establish a common ity. During the autumn, Sampo imple- competence of office staff was reviewed basis for competence development. mented, with the support of the Finnish with respect to the customer services Work Environment Fund, an R&D project offered, and the appropriate competence Focus on supervisor training on the proper management of indoor development was continued through and well-being at work air quality. Sampo’s experts in human network-supported, on-the-job learn- According to Sampo’s job satisfaction resources and workspace management ing. In particular, the service provided survey, employees feel that they can cope will utilise the project results in the to small and medium-size companies well in their work. Supervisor training indoor air workgroup. was supported in the branches through and support in matters related to well- The goal of occupational health has multiform, network-supported training being at work continued along the lines been to evaluate and support the ability programmes. of the previous years. The well-being to work through regular health inspec- The training provided by the Sampo of employees is nowadays considered tions, the monitoring of sick leaves and Business School continued, and the much more carefully and widely in every- referral to treatment programmes. To second Business Training programme day workplace activities. The co-opera- support these activities, an electronic targeted at key personnel was imple- tion with Varma continued, and new Evita health and well-being survey that covers mented during the year. well-being at work projects were com- various areas of well-being at work was

In an employee satisfaction survey carried out in autumn, matters related to gender equality were surveyed for the first time. According to Sampo employees, supervisors also put equality into practice. The picture shows (from left) Risto Riskala, Financial Specialist, and Arja Lähteenmäki and Marjut Kantola, Customer Advisors at the Sampo Bank branch at the Sello shopping centre in Espoo.

18 Sampo | Banking and Long-term Savings 2005 introduced. With this tool, the Group’s In spring 2005, Sampo’s Board of supervisors and specialists and six rep- occupational health function, which Directors decided on the overall reward resenting the employer. is responsible for co-ordinating occu- structure for the entire Group. In addi- Finnish legislation on employee pational health activities, has a better tion to fixed salaries and benefits, the representation in corporate governance opportunity to monitor the effectiveness three main forms of compensation are gives staff representatives the right to be of occupational health work and to direct the personnel fund, the annual bonus present and express opinions at meet- its activities more purposefully. systems and the long-term incentive ings of the Boards of Directors of Sampo programs for management and key Bank and Sampo Life. Equality workgroup experts. These elements are applied A reform of the law on equality between with due consideration for national Job satisfaction at a good level men and women came into effect on collective bargaining agreements and Staff surveys on job satisfaction were 1 June, 2005. For some years already, accepted practices and conformance conducted for the fourth consecutive Sampo has monitored equality issues with legislation. year in 2005, and were designed to be as part of the employer-employee co- At Sampo Bank, the basic salary comparable with the surveys of previ- operation process. When the law reform systems are complemented by the per- ous years. In the main areas, the already was pending, an equality workgroup sonnel fund and by an annual lump-sum good results had further improved. was established consisting of both bonus system. The bonus system covers Comparison of results from several employer and employee representa- all staff groups, and payment of bonuses years also indicates a consistent improv- tives. In response to their proposals, an is based on excellent individual or team ing trend. The satisfaction of Sampo equality plan for 2006 was approved for performance. The personnel fund is a employees has increased in almost all all of Sampo’s banking and long-term form of long-term collective reward, and staff groups, and on a scale of 4 to 10, savings units in Finland. The equality each year profit-sharing bonuses are overall satisfaction was rated 8.2. The plan focuses on recruitment and internal paid to the personnel fund according to equivalent result for 2004 was 8.1. The labour markets, development opportuni- a system agreed upon in advance and response rate was 74 per cent, which ties and career development, compensa- based on Sampo Bank Group’s operating is the second highest rate recorded tion, family-related leaves and sexual profit. In 2005, the personnel fund was with the current type of job satisfaction harassment. paid a total of EUR 4.9 million, based on survey. the profit for 2004. Please consult page 20 of the Group Salaries based on job evaluations Report for a table of the number of The salaries of clerical staff, supervi- Co-operation and representation employees working in each of Sampo sors, specialists and management are The Co-operation Board for Sampo’s Group’s business areas. based on job evaluations. In jobs relat- banking and long-term savings activities ing to the acquisition of new custom- met six times during the year. The Board ers, salaries are largely based on sales has 15 members, with seven represent- commissions. ing clerical employees, two representing

Number of staff working in Banking and Number of staff working in Number of staff in Sampo Group, Investment Services in Sampo Group Life Insurance in Sampo Group by business area Lithuania 295 Others 36 Latvia 26 Others 23 Lithuania 32 Banking and Estonia 500 Investment Latvia 32 P&C Services Finland 3,344 Finland 246 Insurance 4,201 Estonia 37 6,592

Life Insurance 370

Sampo | Banking and Long-term Savings 2005 19 corporate responsibility

Corporate Responsibility

In 2005, the focus was again The credit risk analyses of Sampo on measures promoting Bank’s corporate research assess how the staff’s working capaci- companies manage environmental risks ties and well-being. in Finland and the Baltic countries. Environmental risks are emphasised because of their effect on the continuity For Sampo, the key social issues of 2005 and profitability of operations. related especially to the challenges of Sampo Bank aims to prepare to all population ageing, as in previous years. data security problems, including cases Sampo focused attention on the mea- of attempted fraud in Internet banking, sures needed to prepare for this demo- by developing security systems in its web green light project graphic change. Measures promoting bank and informing customers about Environmental issues were emphasised in working capacities and well-being have risks. Sampo in the Green Light project started in already been emphasised for a number Support for worthy causes 2004. The project aims at reducing electricity of years. and paper consumption, in particular. The staff Responsible companies are con- Sampo continued to support the enter- was encouraged to contribute savings tips and cerned not only about profitability, but prise of children and youth in 2005. to enhance the sorting and recycling of office also about their customers, employees, Sampo donated almost EUR 200,000 waste. the surrounding society and environ- to 103 Finnish comprehensive schools mental issues. and upper secondary schools, especially for projects increasing handicraft Active development skills. Donations were also made to the At the end of 2005, Sampo Bank started Association of Care-Giving Relatives and activities to develop corporate culture Friends and the Mannerheim League for and staff training continued at the Sam- Child Welfare. po Business School and elsewhere. In Sampo Bank’s Estonian subsidiary, Estonia, the main focus was on manage- Sampo Pank, established a three-year ment training. program for the Tartto University Hos- pital to finance scientific research by Sustainability funds for investors doctors. Sampo offers its customers opportuni- Discarded security systems were ties for responsible investment, particu- donated to the Vantaa Vocational Insti- larly through its sustainability funds. tute. The purpose of the donation is to Mandatum Stockbrokers became support vocational security education. the first stockbroker service in Finland Sampo earlier made corresponding to integrate corporate responsibility into donations to other vocational institutes its investment analysis. Mandatum’s providing security education. corporate responsibility criteria have Co-operation with Helia (the Hel- been defined together with other securi- sinki Business Polytechnic) continued. ties firms in the European Securities Sampo’s experts served as lecturers in Network. an introductory course on banking and Mandatum Stockbrokers arranged insurance. an SRI seminar for investors, in which six An equality plan for 2006 was con- Finnish listed companies presented their firmed for all of Sampo’s banking and business from the standpoint of good long-term savings units in Finland. Staff governance and social and environmen- health and well-being at work were pro- tal responsibility. The seminar showed moted through physical exercise cam- that corporate responsibility issues are paigns and by providing support to those valued highly in the management of who wish to stop smoking. Finnish listed companies.

20 Sampo | Banking and Long-term Savings 2005 Consolidated Income Statement by Business Segment for Year Ended 31 December 2005

Banking and P&C Life- Elimina- EURm investment insurance insurance Other tions Group Net interest income 341 -39 8 310 Net income from financial transactions 69 0 6 75 Net fee and commission income 221 -1 -17 203 Impairment losses on loans and receivables 3 -2 1 Insurance premiums 3,709 649 4,358 Net income from investments 42 460 586 15 -23 1,080 Other operating income 60 18 2 76 -84 72 Total operating income 736 4,187 1,238 49 -111 6,100

Claims incurred -2,457 -557 -3,014 Change in liabilities for insurance and investment contracts -390 -390 Staff costs -200 -447 -20 -44 5 -706 Other operating expenses -220 -484 -37 -55 100 -695 Total operating expenses -420 -3,387 -1,004 -98 105 -4,805 Net income between the segments 28 35 18 -81

Profit before taxes 316 800 234 -49 -6 1,295

Taxes -332 Profit for the financial year 963

Attributable to Equity holders of parent company 949 Minority interest 14

Sampo | Banking and Long-term Savings 2005 21 Consolidated Income Statement by Business Segment for Year Ended 31 December 2004

Banking and P&C Life- Elimina- EURm investment insurance insurance Other tions Group Net interest income 322 -38 12 297 Net income from financial transactions 74 -5 -6 64 Net fee and commission income 197 -1 -17 178 Impairment losses on loans and receivables 11 0 11 Insurance premiums 2,697 505 3,202 Net income from investments 29 160 338 162 689 Other operating income 49 15 3 116 -90 94 Total operating income 682 2,872 846 235 -101 4,535

Claims incurred -1,742 -464 -2,206 Change in liabilities for insurance and investment contracts -191 -191 Staff costs -185 -329 -19 -46 13 -567 Other operating expenses -218 -375 -29 -83 88 -617 Total operating expenses -403 -2,445 -703 -129 101 -3,580 Net income between the segments 29 30 21 -79

Profit before taxes from continuing operations 279 427 144 106 0 955

Profit before taxes from discontinued operations -5 -2 -7

Profit before taxes 274 427 142 106 0 948

Taxes -100 Profit for the financial year 848

Attributable to Equity holders of parent company 817 Minority interest 31

22 Sampo | Banking and Long-term Savings 2005 Consolidated Balance Sheet by Business Segment at 31 December 2005

Banking and P&C Life- Elimina- EURm investment insurance insurance Other tions Group Assets Cash and balances at central banks 1,290 366 211 -201 1,665 Financial assets at fair value through p/l 2,409 87 46 3 -8 2,537 Loans and receivables 18,911 62 -55 18,918 Investments 74 9,625 5,707 3,374 -3,468 15,312 Investments related to unit-linked contracts 1,262 1,262 Reinsurers’ share of insurance liabilities 553 5 558 Intangible assets 66 595 157 26 843 Property, plant and equipment 82 29 5 19 135 Other assets 344 1,104 92 108 -67 1,581 Tax assets 18 127 7 20 1 173 Total assets 23,194 12,484 7,493 3,611 -3,797 42,985

Liabilities Financial liabilities at fair value through p/l 464 149 36 649 Amounts owed to credit institutions and customers 12,336 106 -182 12,260 Debt securities in issue 8,461 443 100 1,036 -393 9,647 Liabilities for insurance and investment contracts 7,885 4,738 12,623 Liabilities for unit-linked insurance and investment contracts 1,262 1,262 Other liabilities 892 654 70 101 -67 1,650 Tax liabilities 21 339 180 5 545 Total liabilities 22,175 9,470 6,386 1,248 -642 38,637

Equity Share capital 96 Reserves 1,814 Retained earnings 2,412 Equity attributable to parent company’s equityholders 4,322 Minority interest 26 Total equity 4,348

Total equity and liabilities 42,985

Sampo | Banking and Long-term Savings 2005 23 Consolidated Balance Sheet by Business Segment at 31 December 2004

Banking and P&C Life- Elimina- EURm investment insurance insurance Other tions Group Assets Cash and balances at central banks 921 269 179 -206 1,163 Financial assets at fair value through p/l 2,538 176 38 5 -5 2,751 Loans and receivables 15,835 95 -61 15,869 Investments 78 8,687 5,275 3,540 -3,599 13,981 Investments related to unit-linked contracts 882 882 Reinsurers’ share of insurance liabilities 679 16 696 Intangible assets 141 623 156 24 944 Property, plant and equipment 77 33 20 26 155 Other assets 280 1,072 84 83 -46 1,472 Tax assets 19 191 3 10 224 Total assets 19,889 11,730 6,653 3,782 -3,917 38,138

Liabilities Financial liabilities at fair value through p/l 451 129 9 0 589 Amounts owed to credit institutions and customers 10,985 313 -260 11,037 Debt securities in issue 6,625 271 100 1,222 -290 7,928 Liabilities for insurance and investment contracts 7,600 4,626 12,226 Liabilities for unit-linked insurance and investment contracts 884 884 Other liabilities 710 762 53 140 -55 1,610 Tax liabilities 47 225 117 10 399 Total liabilities 18,817 8,987 5,789 1,685 -606 34,673

Equity Share capital 95 Reserves 1,622 Retained earnings 1,723 Equity attributable to parent company’s equityholders 3,440 Minority interest 26 Total equity 3,465

Total equity and liabilities 38,138

24 Sampo | Banking and Long-term Savings 2005 CONTACT INFORMATION

Sampo plc Visiting address: Unioninkatu 22, Helsinki, Finland Postal address: FI-00075 SAMPO, FINLAND Telephone: +358 10 515 15 Fax: +358 10 516 0051 www.sampo.com

Arvo Asset Management Ltd Mandatum Private Bank Latvia Sweden Visiting address: Visiting address: Bulevardi 10 C, 5th floor, Bulevardi 10, Helsinki, Finland AAS Sampo Dziviba Sampo Bank´s branch Helsinki, Finland Postal address: (Life insurance company) office in Sweden Postal address: P.O.Box 152, FI-00121 HELSINKI, Kronvalda bulvaris 3, LV-1010 Barks väg 11, SE-16903 SOLNA, P.O.Box 152, FI-00121 HELSINKI, FINLAND RIGA, LATVIA SWEDEN FINLAND Telephone: +358 10 236 10 Telephone: +371 7 503 333 Telephone: +468 444 9307 Telephone: +358 10 236 5370 Fax: +358 10 236 5099 Fax: +371 7 503 555 Fax: +468 444 9207 Fax: +358 10 236 5371 www.mandatum.fi www.sampo.lv www.sampo.com www.arvovalue.fi Sampo Bank plc AS Sampo Banka (Bank) Estonia Lacplesa iela 75, LV-1011 RIGA, Realty World Ltd Visiting address: AS Sampo Elukindlustus LATVIA Annankatu 25, FI-00100 Helsinki, Unioninkatu 22, Helsinki, Finland (Life insurance company) Telephone: +371 7286 661 FINLAND Postal address: Narva mnt 11, EE-15015 Fax: +371 7282 788 Telephone: +358 9 612 2150 FI-00075 SAMPO, FINLAND TALLINN, ESTONIA www.sampobanka.lv Fax: +358 9 6122 1530 Telephone: +358 10 515 15 Telephone: +372 6 302 300 www.kiinteistomaailma.fi Fax: +358 9 654 346 Lithuania Fax: +372 6 302 299 Telephone service for customers: www.sampo.ee Mandatum & Co Ltd +358 200 2590 AB SAMPO gyvybes draudimas Visiting address: www.sampo.fi (Life insurance company) AS Sampo Pank (Bank) Fabianinkatu 23, Helsinki, Gelezinio Vilko 18a, LT-08104 Narva mnt 11, EE-15015 Finland Sampo Fund Management Ltd VILNIUS, LITHUANIA TALLINN, ESTONIA Postal address: Visiting address: Telephone: +370 5 2109 390 Telephone: +372 6 302 100 P.O.Box 95, FI-00131 HELSINKI, Bulevardi 10 A, 6th floor Fax: +370 5 2109 380 Fax: +372 6 302 200 FINLAND Helsinki, Finland www.sampo.lt www.sampo.ee Telephone: +358 10 236 5450 Postal address: Fax: +358 9 177 977 P.O.Box 1396, FI-00075 SAMPO, AB Sampo bankas (Bank) Associated and www.mandatum.fi FINLAND Gelezinio Vilko 18 A, LT-08500 Telephone: +358 10 236 10 Co-operation VILNIUS, LITHUANIA Companies Mandatum Asset Fax: +358 10 236 5050 Telephone: +370 5 2109 400 www.sampo.fi Management Ltd Fax: +370 5 2109 409 Kaleva Mutual Visiting address: www.sampo.lt Insurance Company Sampo Life Insurance Bulevardi 10 A, Helsinki, Finland Visiting address: Postal address: Company Limited Norway Bulevardi 56, Helsinki, Finland P.O.Box 152, FI-00121 HELSINKI, Visiting address: Postal address: Sampo Life Insurance FINLAND Bulevardi 56, Helsinki, Finland FI-00075 SAMPO, FINLAND Company´s branch Telephone: +358 10 236 10 Postal address: Telephone: + 358 10 515 225 Fax: +358 10 236 5350 FI-00075 SAMPO, FINLAND office in Norway www.mandatum.fi Telephone: +358 10 515 225 Visiting adress: www.henki-sampo.fi Lysaker Torg 35, Lysaker, Oslo Mandatum Securities Ltd Postal address: The contact information for Visiting address: 3C Asset Management Ltd P.O. Box 240, N-1326, LYSAKER, P&C Insurance is available in the Unioninkatu 22, Helsinki, Finland Visiting address: NORWAY Annual Report part for ‘If P&C Postal address: Bulevardi 10 B, Helsinki, Finland Telephone: +47 9800 02400 Insurance’ and on the Internet at P.O.Box 66, FI-00131 HELSINKI, Postal address: Fax: +47 67 84 00 60 www.if.fi FINLAND P.O.Box 152, FI-00121 HELSINKI, www.if.no Telephone: +358 10 236 10 FINLAND Fax: +358 9 651 086 Telephone: +358 9 3481 5100 www.mandatum.fi Fax: +358 9 3481 5151 www.3cfund.com

Concept, graphic design and layout: Miltton Oy | Photographers: Horst Neumann and Petri Artturi Asikainen | Translation: Bellcrest-Translations Ltd, Tmi Tina Pettersson-Mäki, Uddevalla Språkkonsult, Olof Sandberg | Photographs: Tapani Kyrki (cover and case, Sampo Group Review), Olli Pulkkanen (cover, Banking and Long-term Savings), Maria Ervasti (cover, If P&C Insurance) | Printing: Libris, Helsinki 2006 | Sampo plc, registered domicile Helsinki, business ID 0142213-3

Sampo | Banking and Long-term Savings 2005 25

If P&C Insurance 2005

ordicproperty Thescope for

newinitiatives N andcasualty

insurancehas been consideredlimited... Sampo Group

Sampo is a financial services group comprising

Sampo Group’s core businesses are banking, long-term savings and property and casualty insurance.

&C insurance RoE 24.1% Combined ratio 90.5%

Banking and investment services If P&C Insurance is the leading property and casualty insurance company in the Nordic RoE 23.1% countries, with approximately 3.6 million Cost to income ratio 57.3% customers and a staff of about 6,600 people. In 2005, If’s total premiums written Sampo Bank provides banking services and were EUR 4 billion. If offers P&C services required for managing money insurance in Finland, Swe- affairs and financially securing the den, Norway, Denmark, future for retail, corporate and Estonia, Latvia and institutional customers. About Lithuania. 1,1 million retail customers and almost 100,000 corporate RoE 28.4% and institutional customers use Earning per share, EUR 1.68 these banking and long-term Profit before taxes EURm 1,295 Life insurance savings services. Sampo’s banking and investment services employ RoE 39.0% about 4,200 people and are available Expense ratio 93.4% in Finland, Sweden, Estonia, Latvia and Lithuania. Sampo Life specialises in life and pension insurance, with Sampo is also well-known to Finnish customers for operations in Finland, Sweden, Norway, Estonia, Latvia and Lithu- its Mandatum brand in asset management, private ania. Sampo employs approximately 370 people in its life and banking, corporate finance and stock brokerage. pension insurance businesses. Some of the mutual funds also still bear the name Mandatum. In real estate, Realty World (Kiin- teistömaailma) offers real estate agency services for houses and apartments on our behalf all over Finland.

Group profit before taxes Sampo Group staff per country, per cent

16 new products during 2005.

Contents

2 President’s statement 17 Social responsibility 4 Business mission, strategy & 18 Risks and risk management financial objectives 19 Five-year summary 5 Market and competitors 20 Cash flow statement 6 Business area Private 21 Income statement 9 Business area Commercial 22 Balance sheet 12 Business area Industrial 24 Glossary and defintitions 14 Business area Baltic countries 25 Addresses 16 Human resources President’s Review

Strong profitability and new product opportunities

If | If P&C Insurance 2005 If reported its best earnings to date in 2005. Operating profit surance providing access to faster care for those becoming ill. amounted to MSEK 7,493 (5,319), corresponding to an excellent The personal risk and personnel insurance markets are highly return of 31.8% on equity, after paid taxes. The earnings derived dynamic areas where the underlying trend indicates that prop- from both a highly favorable trend for insurance operations, erty and casualty insurance companies will eventually play an with a combined ratio of 90.5% (92.6), and a strong return increased role as security providers in those societies in which on investment assets. As a result of target-oriented efforts to they operate. increase earnings, If’s combined ratio has improved quarter by During 2005 and 2006, If is introducing If Plus, a completely quarter since 2001. new Nordic customer-benefit program. If Plus will provide a The strong earnings are attributable to the work conducted by series of benefits to private individuals who concentrate their If on two fronts. Firstly, we have established one of the most insurance coverage within If, such as lower insurance premi- competitive cost levels in the market by capitalizing on econo- ums, lower deductibles and better prices for claims-preven- mies of scale within If and by establishing and consolidating a tion products. The If Plus concept is unique and has been re- corporate culture characterized by thrift. Secondly, the qual- ceived extremely well by customers. ity of the risks associated with the insurance portfolio has been Our extended cooperation with Ford and Volvo has proved raised. Today, risk selection within If is significantly better to be another Nordic success. For some time now, If and a than it was a few years ago, as is our ability to help customers number of car makes within the Ford Group have engaged in avoid claims. Despite the storm Gudrun, one of the most seri- close cooperation in such areas as sales, product development ous events in the history of Nordic insurance, resulting in to- and repair control. The cooperation is now being renewed tal costs of nearly SEK 10 billion for the sector as a whole, If’s and expanded to include all car makes in all of the Nordic combined ratio improved. countries over the forthcoming five-year period. The agree- One of the concepts underlying If is the company’s ability to ment provides If with an excellent platform upon which to generate economies of scale. It is gratifying to note that, six continue to lead the Nordic market for motor insurance. years after its inception, this strategy is continuing to bear Claims adjustment is an area in which we believe that the initi- fruit in terms of both direct savings and forward-looking cus- atives implemented by If will generate important effects. Cus- tomer initiatives. One major synergistic gain achieved during tomer surveys show that, in addition to paying correct pre- the year was the pan-Nordic sourcing agreement concluded miums, our customers also assign priority to receiving rapid in spring 2005 with TietoEnator, Telenor/Elisa and Pitney assistance. If adjusts more than one and a half million claims Bowes for If’s IT operations. If receives the same IT support every year, of which more than half are definitively adjusted in all countries and the quality of the support provided was in- within a day. Customers are beginning to note the difference creased by moving from general agreements to specialist sup- compared with our competitors. pliers within clearly defined areas. As a result of these agreements, If achieved an annual saving of at least MSEK 100. One of If’s objectives is to achieve stronger growth than our competitors in the Nordic markets. “Best in Risk” is the over- Like all insurance companies, If is IT intensive, with IT and riding theme for If’s future strategy. During the year, a com- telephony accounting for approximately one sixth of the comprehensive training program in this area was introduced, in pany’s costs. IT initiatives create conditions for both superi- which all If employees participated. “Best in Risk” is a long- or customer service and increased efficiency. This trend is the term initiative that will be driven with the same focus and in- result of interaction between technological innovation and tensity as the former turnaround program. This means, for changes in customer preferences and requirements. During example, that distinct priorities will be set for work aimed at the year, If completed a new Nordic production system for in- offering the best insurance solutions in the market combined dustrial customers, which will replace 14 old systems in 2006. with the best risk selection, a further adjustment of the re- In the Finnish private market, we successfully converted wards structure in the company towards achieving these goals 800,000 customers to new insurance products within a new and an increased focus on training. production system during the year. These are both examples of how investments can lead to faster and cheaper administration It is with great pleasure that I present the Group’s excellent and improved opportunities for control and risk selection. earnings for 2005, which were achieved with the help of all of If’s employees. This is the result of the long-term efforts of our Within product development, If also made considerable ad- insurance operations, which demonstrates the strength of If’s vances toward Nordic solutions during the year, as exemplified Nordic business model and encompasses major investments by the personal risk market, which was opened to If in 2004, in the future. Finally, the earnings reported are proof of the va- when If became a wholly owned subsidiary of Sampo. In a short lidity of our ambition to continue to be “Best in Risk.” period, If has established a position as a significant player in this market by offering a series of new concepts, such as Nordic child insurance and Nordic accident insurance as well as Nordic insurance for adults that provides financial protection in the event of serious illness. More innovations will be launched in 2006. If also launched several new Nordic products within person- Torbjörn Magnusson nel insurance during 2005, including private healthcare in- If’s President

If | If P&C Insurance 2005 Business mission, strategy and financial objectives

Stable profitability and selective growth

Vision Sharper customer focus Long-term objectives If is the leading casualty and property in- Correct and rapid claims adjustment is Return on economic capital: surance company in the Nordic region the factor that is most important in ef- 17.5 percent and offers stability and security to its forts to ensure that existing custom- customers through competitive insurers continue to select If as their insur- Credit rating: rating of A according to the Standard & Poor’s and Moody’s rating ance solutions and unrivaled insurance ance company and also to attract new, institutions. expertise. risk-aware customers. If devises unique Nordic customer concepts that reward Being the leading player mainly entails loyalty. Digital solutions make it easier Solvency capital that: for private individuals and commercial % MSEK • Customers view If as the foremost customers to contact If. 100 insurance expert with the most 30,000 Selective growth competitive insurance solutions. 80 24,000 If is the leading casualty and property in- 60 18,000 • Employees regard If as the most surance company in the Nordic region attractive employer in the industry. and will strengthen its market position 40 12,000 via organic growth and selective acqui- 20 6,000 • Shareholders view If as a stable sitions in strategically significant areas. 0 0 investment that offers limited risk 2004 2005 combined with an attractive return. Investment strategy based Solvency capital on balanced risk Solvency margin Business mission If seeks a risk level characterized by a If develops and sells property and casu- balance between the risks in its insur- alty insurance solutions that offer cus- Combined ratio ance and investment portfolios. The aim tomers security in their business opera- of If’s investment strategy is to maintain % tions, housing and daily lives. a balance between insurance commit- 100 Strategy ments and investment assets in terms of 80 By capitalizing on the benefits offered currency and duration. Surplus capital is by the Nordic organization in such areas invested in an effort to enhance the total 60 as insurance solutions, pricing, and risk return. 40 selection and through the introduction 20

of standardized work processes, If will 0 establish sustainable profitability that is 2004 2005 superior to that of competitors.

Operating result Key figures, MSEK 2005 2004 MSEK Gross premiums written 36,768 35,958 7,000 6,000 Net premiums earned 34,426 32,764 5,000 Technical result 4,785 4,470 4,000 Investment income 4,960 3,347 3,000 Operating result 7,493 5,319 2,000 Combined ratio 90.5% 92.6% 1,000 Risk ratio 66.2% 67.0% 0 2004 2005 Cost ratio 24.3% 25.6% Technical result Insurance margin 13.9% 12.9% Cash flow from insurance operations 6,903 5,473 Return on equity 31.8% 27.0% Solvency ratio 87.5% 69.8% Average number of employees 6,592 6,776

If | If P&C Insurance 2005 Market and competitors

If – the largest property & casulty insurer in the Nordic region

With an estimated premium value of The premiums for reinsurance reflect Market shares in Finland 1) approximately SEK 160 billion, the Nordic the major claims incidents that have oc- region is the seventh largest insurance curred in recent years, such as the win- Others 8% market in Europe. The total premium ter storm Gudrun, the tsunami disaster Lähivakuutus 9% value of the European market is SEK If 29% and hurricanes in North America. The Fennia 10% 3,300 billion. If is the largest company opportunities for direct reinsurance rein the Nordic region and one of the 15 main limited since the credit ratings of largest casualty and property insurance several major reinsurers have been re- Tapiola 18% companies in Europe. duced, which means that these compa- Pohjola 26% nies no longer fulfill the direct insurance The Nordic region companies’ official demands for finan- If is the only specialized Nordic prop- cial solvency. 1) erty and casualty company, although Market shares in Sweden certain competitors pursue focused The public welfare system in the Nordic cross-border operations. If’s total mar- countries has changed in recent years, Others 16% ket share corresponds to more than one which has led to increased demand for If 20% fifth of the Nordic market. It is the larg- insurance solutions that supplement est company in Finland, with a market the public systems. During the year, If Folksam 15% share of 29%, and the second largest launched a number of new insurance so- company in Norway (31%) and Swe- lutions in this area, such as child insur- Länsförsäkringar 31% Trygg Hansa 18% den (20%). In the more fragmented ance and healthcare insurance. Danish market, If is the fifth largest The Baltic countries player with a market share of 6%. If has established a presence as one of The Nordic insurance market is relative- the principal players in the growing Market shares in Norway 1) ly consolidated. The market share of the Baltic markets. The Estonian insur- largest companies has risen substantial- ance market is dominated by four major Others 8% ly since the mid-1990s. The five largest players, of which If is the market leader Sparebank 10% companies account for two thirds of the accounting for 39%. The Latvian and If 31% market and three of them are established Lithuanian markets are more fragment- Vesta 18% in more than one Nordic country. ed with a large number of players. If is the fourth largest company with a mar- Growth in the Nordic casualty and ket share of 10% in Lithuania and the Gjensidige 33% property insurance market tracks fifth largest company in Latvia with a growth in the gross domestic prod- market share of 9%. uct, GDP. During the 1990s, premium levels fell in relation to GDP and most The Baltic markets are characterized by Market shares in Denmark 1) companies experienced profitability high growth, in part because a relatively problems. Since the beginning of the low portion of the population is insured Tryg 20% 21st century, premium levels have risen and in part because GDP growth is con- Others 32% slightly in relation to GDP and the sec- siderable. In 2005, the market grew by tor has attained a sustainable level of 13%. During the same period, If grew Topdanmark 19% profitability. by 16%. New players established posi- If 6% tions in the Baltic markets in 2005. Alm. Brand 10% Codan 13% Market shares If Position 2005 2004 2003 Finland 1 29% 30% 32% Norway 2 31% 31% 31% Sweden 2 20% 23% 23% Denmark 5 n.a. 6% 6% Nordic region 1 n.a. 21% 22% Estonia 1 39% 41% 37% Latvia 5 9% 8% 6% Lithuania 4 10% 8% 7% 1) Sources: Danish, Finnish, Norwegian and Swedish insurance Baltic countries 2 18% 18% 15% associations. Danish statistics are for 2004.

If | If P&C Insurance 2005 BUSINESS AREA PRIVATE

Healthy earnings and initiatives in new product areas

If is the market leader within private property and casualty insurance in the Nordic Business trend during the year region and offers comprehensive insurance cover to private individuals in Norway, As a result of continued focus on ef- Sweden, Finland and Denmark. It has 3 million customers. ficiency, improved risk selection and a relatively favorable claims trend during Brands: If, Europeiske (travel insurance in Norway) and car-make insurance in the year, last years strong result could be cooperation with automakers and branded workshops, such as Saab Försäkring maintained in 2005. The technical re- and Volvia. sult amounted to MSEK 2 789 (2 750) and the already low combined ratio improved marginally to 89.1% (89.4). Gross premiums written per product Gross premiums written per distribution channel Adjusted for exchange-rate effects, pre- Personal Other 1% Telephone sales 4% accident 7% Other 5% miums written rose by 3% during the Branch Office 6% year, due to volume growth in Finland Property 28% Car-make Customer and Sweden. New personal insurance Insurance 8% center 33% Motor, products launched during the year, such hull 34% Agents 16% as accident insurance and child insurance, contributed to the growth. Motor third party liability 30% Car dealers 28% As a result of more stringent risk selection and improved pricing the risk ratio remained at the same level as last year, Gross premiums written per country Product mix per country despite a claims-intensive first quarter.

MSEK The risk ratio was 64.6 (64.8) at year- Denmark 5% 7,000 end. Most product areas were showing Finland 20% 6,000 strong results, but motor and proper- 5,000 ty insurance contributed most towards Sweden 40% 4,000 the earnings. As in 2004, the claims 3,000 trend was unusually favorable in Nor- 2,000 way while the trend was more stable in Norway 35% 1,000 the other Nordic countries. The aver- 0 Finland Sweden Norway Denmark age claim cost trend was positive due Property Motor TPL to such factors as favorable repair costs. Motor hull Personal accident Other The winter storms had a negative impact of approximately MSEK 100 net of reinsurance. However, this was offset by Key figures, MSEK downward adjustments of claims provi- 2005 2004 sions, in part connected to the tsunami Gross premiums written 18,964 17,907 disaster at the end of 2004. Net premiums earned 18,212 17,016 Excluding exchange-rate effects, costs Underwriting result 1,990 1,807 rose by MSEK 160, following increased Technical result 2,789 2,750 sales costs connected to the launching of Risk ratio 64.6% 64.8% new personal risk products, restructur- Cost ratio 24.5% 24.5% ing costs and some one -offs. However, Combined ratio 89.1% 89.4% due to enhanced efficiency the cost ratio Insurance margin 15.4% 16.1% remained on the same level as last year Technical provisions: (24.5%). Gross 33,700 30,547 Net 33,392 30,291 Activities during the year Average number of employees 2,724 2,832 If endeavors to cost-effectively deliver good products to private customers in the Nordic region. The company also aims to provide customers with good advice about claims prevention and access to products that make their everyday life safer. To improve customer service and spare customers from obtaining

If | If P&C Insurance 2005 If helps to increase security for the entire family.

the wrong type of insurance protection, If launched its “Active service” program in 2005, whereby customers and If personnel jointly review all of the customers’ current policies and their total insurance requirements. During 2005, “Ac- tive service” helped 360,000 customers to review their insurance cover and the objective is to further increase this figure in 2006. To help customers become more conscious of risks and to prevent claims arising in their everyday life, the popular “Bad luck test” was launched on the Internet. This test won several awards during the year. In order to further improve If’s product offering to private customers, “If Plus” was launched successfully in Norway and Sweden during the year. This program rewards those customers who concentrate their insurance cover in If by offering them such benefits as lower deductibles and premium discounts. If Plus customers are also offered various services, such as cut-price rental of child car seats and claims-prevention products.

If | If P&C Insurance 2005 BUSINESS AREA PRIVATE

To satisfy customer requirements for for certain products in Finland will be Norwegians worried by fire rapid assistance in the event of a claim, refined using the platforms applied in In a survey, a full 82% of Norwegians efforts designed to reduce the claims- Norway and Sweden as a model. In ad- state that their greatest cause for concern is fire at home. Of Swedish administration time continued during dition, improved risk-selection and respondents, only slightly more than the year. The proportion of custom- pricing systems are being used at If’s call half were concerned about this, ers who had their claims finally settled centers, something that has proved ef- although nearly half of them were within 24 hours rose to 60% (58) in fective in efforts to avoid the incorrect instead concerned about burglary, while 2005, thus contributing to both in- pricing of products. fewer than two of every ten Norwegians creased customer satisfaction and a re- were worried about a visit from thieves. Market requirements for efficient and duction in administrative costs. The Finns were not as concerned about rapid service in connection with claims burglary, but they were more than Personal insurance is an important are increasing. As part of efforts to im- double as worried as the Swedes and four times as growth area for If. Accordingly, several prove both service and efficiency, If’s worried as the Norwegians about water damage. new personal insurance products were customers will themselves be able to launched in 2005: child insurance, acci- report their claims and have claims de- Swedes are significantly more concerned about dent insurance, life insurance and adult cisions by the Internet within certain death than their Nordic neighbors, with 15% of all insurance. The personal insurance prod- product areas. During 2005, this system Swedish respondents stating that they are scared ucts achieved a sales volume of 65,000 was launched successfully in Finland to die. The corresponding figures for Norway and signed policies as early as during the in the personal claims area. Starting in Finland were 11% and 10%, respectively. However, year of launching. 2006, the system will be expanded to Nordic people feel less threatened than other nationalities by increasing terror and instability in also include other countries and prod- Future focus the world. Virtually no Swede, Finn or Norwegian uct areas. Risk selection and correct pricing are stated that they were afraid of terror attacks. the keys to sustainable profitability and Personal insurance is the segment of also benefit customers by helping to the private market that is expected to Finns and Norwegians are twice as scared as stabilize price levels over time. Since grow most during the years immediate- Swedes of being injured by a reckless car driver. In Finland, people are also much more concerned the pricing methods used in the Nor- ly ahead. As a result of changes in social than other Nordic citizens about being injured dic markets vary in accordance with the security systems in the Nordic markets, by a drunk driver. Nearly one of every ten Finns competitive situation, there is scope to demand for private alternatives is in- also stated that driving a car in the dark was develop more efficient pricing methods creasing. By continuing to focus on effi- frightening, while the Norwegians hardly worried by increasing the transfer of knowledge ciency, pricing and risk selection, If will about this at all. among the countries in which If is ac- be able to cost-effectively offer attractive tive. For example, the pricing platform products to the private market. Source: If/Gallup 2005

Gross premiums written Technical result Combinated ratio

MSEK MSEK MSEK % 17,500 2,500 17,500 100 15,000 2,000 12,500 14,000 80 10,000 1,500 10,500 60 7,500 1,000 7,000 40 5,000 500 2,500 3,500 20 0 0 0 0 2004 2005 2004 2005 2004 2005 Net premiums written Risk ratio Cost ratio Net premiums earned

If | If P&C Insurance 2005 business area commercial

Focus on improved customer service and sales

If is a market leader among small and medium-size companies (companies Business trend during the year with up to 500 employees) in the Nordic region and has operations in Earnings improved sharply compared Sweden, Finland, Norway and Denmark. The company has approximately with the preceding year, as a result of 340,000 customers, of whom about 70% are small companies that are offered improved risk selection, efficiency im- standardized insurance solutions, while the remaining 30% require more provements and a favorable claims specialized insurance solutions and counseling. trend. The technical result rose to MSEK 1,469 (1,039) during the year. The combined ratio improved to 90.6% Gross premiums written per product Premiums per distribution channel (95.0). Cargo 6% Excluding exchange-rate effects, pre- Personal Other 1% Alliances 8% Other 2% accident 5% mium income was unchanged during the year. Premium adjustments were Liability 8% Agents 12% Property 35% Own sales only required in certain specific product Workers’ force 38% areas in order to track the claims-pay- compensation Brokers 17% 15% ment trend. Personnel products were Motor third party launched in all Nordic countries during Motor hull 18% liability 13% Customer center 23% the year, which had a favorable impact on premium volume. Stringent risk selection and increased ef- Gross premiums written per country Product mix per country ficiency as well as the favourable claims outcome impacted the risk ratio posi- MSEK Denmark 10% tivly. At year-end, the cost of major 5,000 Sweden 22% claims was approximately MSEK 300 Finland 22% 4,000 lower than the normalized level, mainly as a result of the claims trend within the 3,000 property segment. The risk ratio was re- 2,000 duced to 65,3% (68.5). Norway 46% 1,000 Adjusted for exchange-rate effects, costs 0 Finland Sweden Norway Denmark declined with MSEK 50. The opera- Property Motor TPL Motor hull tions have become increasingly efficient Workers’ comp. Liability Personal accident Cargo Other as a result of organizational changes and general cost awareness. Improved work processes within both claims handling Key figures, MSEK and sales channels also contributed to 2005 2004 the increased efficiency. As the effe- Gross premiums written 11,232 10,991 ciency was enhanced, the risk ratio im- Net premiums earned 11,064 10,460 proved to 25.3% (26.5). Underwriting result 1,035 522 Technical result 1,469 1,039 Activities during the year Risk ratio 65.3% 68.5% During recent years, the price scenario Cost ratio 25.3% 26.5% in the Nordic market for commercial Combined ratio 90.6% 95.0% insurance has stabilized. If’s position Insurance margin 13.4% 10.0% is strong, both financially and in the Technical provisions: market. The new forms of cooperation Gross 23,063 21,209 within distribution in some countries Net 21,503 19,576 will start to affect the commercial mar- Average number of employees 2,048 2,108 ket in 2006. The competition for customers who are reviewing their insurance cover is expected to increase. During 2005, If implemented a series of changes in such areas as customer service and distribution in order to consolidate and enhance its market position. Among other improvements, processes, IT sup-

If | If P&C Insurance 2005 business area commercial

It is essential that each company has exactly the insurance cover it needs – neither more, nor less.

10 If | If P&C Insurance 2005 port and sales methods were refined in is one of the keys to success order to better match customer require- in the insurance market of ments and expectations. For example, the future. A well-developed the company’s direct sales efforts now understanding of risk is of focus on strategically and geographi- vital importance to efforts to cally selected areas. At the same time, the increase customer satisfaction processes at If’s customer centers have and secure long-term profitability su- Nordic businessmen been simplified and made more uni- perior to that of competitors. are secure form. From the viewpoint of customers, Asked whether they were concerned about the A series of risk-related projects are the new work methods help to improve risk of crime against their company, approximately under way: quality, availability and efficiency. 67% of businessmen in Norway, 60% in Sweden and slightly more than 45% in Finland responded • The product range is changing. In order to improve customer service, no. The difference in responses among owners of New concepts are being devised in the development of IT-based tools and small and midsize companies amounted to only a order to cover the entire breadth of more automated processes continues, as couple of percentage points. customer requirements. Particular exemplified by If Login. This is an Inter- attention is being paid to pan- net portal for If’s corporate customers Norway is the country where the respondents were Nordic solutions. least concerned about increased competition and that provides them with an overview of economic fluctuations. Only 13% were concerned their entire insurance cover and enables • New pricing methods and pricing about the risk of burglary. The same percentage, them to report claims and receive help tools are being developed. 13%, were concerned about economic fluctuations. in claims prevention. If Login is widely • A broad skills-development The corresponding percentages among Swedish appreciated among customers and the program focusing on risk awareness businessmen were 27% and 17%, respectively. In number of users rose by approximately Finland, 26% of owners of small-scale businesses and risk expertise, including the 65% during the year. The service gen- and 14% of midsize businesses were concerned transfer of knowledge among erates considerable efficiency gains, for about burglary. Moreover, 21% of midsize companies Nordic countries, commenced both customers and If. were concerned about low-price competition. in 2005 and is continuing during Personnel products are a strategical- 2006. Another question concerned whether new ly important growth area. In 2005, If laws and ordinances were affecting business • Work to improve cost-effectiveness launched a series of new products, such and the extent to which this was worrying the continues with undiminished as healthcare insurance, which is now businessmen. The responses show that Swedish strength. A key example is the available in all Nordic countires. Reha- businessmen are least concerned, with 67% not work to further increase the bilitation insurance has been established worried about changes in legislation. In Finland efficiency of internal processes. in Sweden and in Norway, a sales initia- and Norway, the responses of midsize companies At the same time, If Login and differed from those of the small companies. tive focusing on group life insurance other IT solutions are generating In Finland, 71% of small companies were not was implemented. In 2005, new prod- distinct benefits in the daily lives of concerned about changes in legislation. Among the ucts accounted for 25% of the growth customers, and long-term savings midsize businesses, the percentage was 55%. In reported in Norway. for If. Norway, the reverse was true: 55% of small-scale Future focus companies and 64% of midsize companies were not concerned about how changes in laws and The ability to continuously refine risk- ordinances would affect their business. selection and risk-evaluation processes

Source: If/Gallup 2006

Gross premiums written Technical result Combined ratio

MSEK MSEK MSEK % 1,400 10,000 10,000 100 1,200 8,000 8,000 80 1,000 6,000 800 6,000 60 600 4,000 4,000 40 400 2,000 2,000 20 200 0 0 0 0 2004 2005 2004 2005 2004 2005 Net premiums written Risk ratio Cost ratio Net premiums earned

If | If P&C Insurance 2005 11 BUSINESS AREA industrial

Risk selection and customer service in focus

The Industrial business area is a market leader in industrial insurance in the Nordic Business trend during the year region and insures large companies with Nordic connections. For companies with Earnings during 2005 declined, despite operations outside the Nordic region, If has branch offices in several European improved risk selection and efficiency countries and an extensive global network of local business partners. Customers are improvements as it was a more normal primarily companies with sales exceeding MSEK 500, or more than 500 employees, claims trend 2005, compared to the ex- and with complex insurance requirements. The business area has approximately tremely favourable claims outcome in 1,200 customers. 2004. The technical result amounted to MSEK 494 (714) and the combined ratio increased to 94.5% (91.0). Gross premiums written per product Gross premiums written per country Net premiums earned declined by 4% Cargo 9% Other 1% during the year, mainly as a result of a Personal accident 6% Denmark 15% reduction in premiums written in Swe- den. The decline was due in part to in- Property 45% Sweden 40% Liability 18% creased reinsurance costs and in part to Finland 27% consistent focus on risk selection.

Workers’ The risk ratio rose to 75.1% (67.0), as compensation Motor third party liability 3% Norway 18% a result of an increase in major claims 14% Motor hull 3% compared with the preceding year and the winter storms experienced in Janu- ary 2005. In the property and cargo Gross premiums written per product Gross premiums written per country segments, the cost of major claims was MSEK MSEK somewhat higher than a normalized lev-

2,500 2,500 el. The winter storms at the beginning of the year accounted for MSEK 106 of 2,000 2,000 the increasing claims costs. 1,500 1,500 Costs decreased by 20 percent to MSEK 1,000 1,000 832, mainly as a result of lower com- 500 500 mission expenses, reduced staffing and 0 0 general cost rationalization. The im- Pro- Motor Motor Workers’ Lia- Personal Cargo Other Finland Sweden Norway Denmark perty TPL hull comp. bility accident Net premiums written proved efficiency resulted in a cost ratio Net premiums written of 19.3% (24.0). Activities during the year

Key figures, MSEK In order to ensure competitive service 2005 2004 and cost-effectiveness, several improve- Gross premiums written 5,594 5,785 ments of products, concepts and work Net premiums earned 4,301 4,487 processes were implemented during the Underwriting result 237 405 year. The key work processes now have Technical result 494 714 a Nordic structure, which is enabling Risk ratio 75.1% 67.0% the realization of economies of scale Cost ratio 19.3% 24.0% within underwriting, product develop- Combined ratio 94.5% 91.0% ment and customer service. For exam- Insurance margin 11.3% 15.5% ple, Lighthouse, a Nordic IT system, Technical provisions: was launched during 2005, thus creat- Gross 15,338 13,329 ing a joint work process in all If coun- Net 12,712 11,332 tries. Lighthouse, which was launched Average number of employees 329 356 in eight countries and replaces several existing systems, will contribute to increased efficiency and generate a number of customer benefits. From a European perspective, Lighthouse is unique, because it produces insurance contracts and conducts administrative insurance work in all countires where If

12 If | If P&C Insurance 2005 operates using a single system, despite the differing legal requirements and tax- calculation methods prevailing in the various countries. If is a leading player in Since maintaining efficient control over the Nordic market for portfolio risks is of decisive impor- industrial customers. tance to long-term profitability, several improvements of risk-evaluation and control methods have been implemented within underwriting during recent years. The joint Nordic guidelines for underwriting have now gained an impact on operating earnings. In order to further enhance risk quality and control, underwriting units are product-special- izied. In addition, specialized Nordic centers of excellence have been established for selected industries. Moreover, Nordic benchmarking and evaluations are being implemented with the aim of securing the transfer of knowledge and equivalent work methods. To strengthen risk competencies, several training activities were also implemented during the year. Industrial insurance is sold through customers and insurance brokers in the In order to be perceived by industri- brokers and via If’s proprietary sales future, and on developing and improv- al customers as an attractive insurance force. During recent years, the impor- ing service solutions that satisfy the supplier, it is essential that customers tance of the broker’s role has increased recipients’ requirements. with operations outside the Nordic rein all of the Nordic countries. In 2005, If will also develop insurance solutions gion are offered good service. Accord- the brokers’ share of the market stabi- and products that meet changed market ingly, If established a new business unit lized in all Nordic countries, apart from requirements. One of the main areas of during 2005 with the assignment of im- Finland, where the portion of brokered such work at present involves person- proving and developing customer serv- business is still rising. As an insurer, If nel injury products, such as accident ice outside the Nordic region with the is dependent on upholding close direct insurance, group life insurance, health help of If’s own branch offices abroad cooperation with customers, regardless insurance and travel insurance, since and selected international business part- of whether a broker is used or whether these products are expected to become ners. the customers themselves have estab- a significant part of the Nordic compa- lished in-house units for risk manage- Future focus nies’ future compensation packages to ment. Accordingly, If will focus on To a considerable extent, industrial employees. strengthening its cooperation with customers are becoming more professional and more aware of the complex- ity of insurance and risk-management matters. During 2005, more companies Gross premiums written Technical result Combined ratio strengthened their internal risk-management activities, partly as a result of MSEK MSEK MSEK % 700 more stringent legal requirements and 5,000 5,000 100 changed accounting principles. If will 600 4,000 4,000 80 continue to invest in skills-enhance- 500 ment activities involving insurance 3,000 400 3,000 60 300 counseling and risk management in or- 2,000 2,000 40 200 der to safeguard its competitiveness, 1,000 1,000 20 100 and will continue to be an important 0 0 0 0 business partner in risk-related matters. 2004 2005 2004 2005 2004 2005 Net premiums written Risk ratio Cost ratio Net premiums earned

If | If P&C Insurance 2005 13 BUSINESS AREA BALTIC COUNTRies

Sharp and profitable growth

If is the market leader in Estonia, with a market share of 41%. If has a market Business trend during the year share of 10% in Lithuania and 9% in Latvia. The number of customers is The profitablity was good, however, 300,000. the technical result deteriorated to MSEK 89 (101) in 2005 and the combined ratio increased to 92.0% (87.9) Gross premiums written per product Gross premiums written per distribution due to the extremely favourable claims channel Cargo 4% Other 1% outcome in 2004. Liability 4% Partners 12% Premium growth amounted to 16%, Personal Property 27% accident 6% Own sales force 30% as a result of very strong growth in Latvia and Lithuania, of 28% and 35%, Motor respectively. The strong growth was hull 36% Brokers 43% mainly attributable to motor insurance. Motor third party Customer center 15% liability 22% The increase in the risk ratio compared with the preceding year was expected because of the unusually low claims trend reported in 2004, due to favora- Gross premiums written per country Product mix per country ble weather and much fewer claims than MSEK usual. Consequently, the risk ratio in- Latvia 16% 600 creased from 54% to 59%. The storms 500 experienced at the beginning of 2005 400 Lithuania 20% increased the risk ratio by 1.5 percent- Estonia 64% 300 age points. Increased claims costs with- 200 in motor third party liability insurance 100 also had an adverse impact on the risk 0 ratio. Estonia Lithuania Latvia Property Motor TPL Motor hull Personal accident As a result of thorough cost follow-ups Liability Cargo Other and cost control, efficiency increased during the year. The cost ratio improved to 32.8% (33.4), despite considerable Key figures, MSEK investments in IT during the year with 2005 2004 the aim of further enhancing efficiency. Gross premiums written 978 835 Net premiums earned 900 740 Activities during the year Underwriting result 72 90 If’s growth in Latvia and Lithuania dur- Technical result 89 101 ing the year far exceeded the market av- Risk ratio 59.2% 54.5% erage. In Estonia, the growth rate was Cost ratio 32.8% 33.4% in line with the market as a whole. To Combined ratio 92.0% 87.9% sustain profitability and while simulta- Insurance margin 9.9% 13.6% neously growing, the focus remains on Technical provisions: risk selection and correct pricing. Since Gross 759 582 improved risk management among Net 701 537 companies and private individuals con- Average number of employees 696 695 tributes to sustainable and profitable growth, activities in this area were implemented during the year. In Estonia, a special unit was also formed to offer commercial customers improved service. In Latvia, If introduced a bonus program for motor insurance customers, under which profitable and loyal customers receive compensation in the form of premium discounts. The aim of this action is to increase customer satis-

14 If | If P&C Insurance 2005 There are several ways of selling insurance efficiently and in a customer-friendly manner. In Estonia, for example, you can purchase motor third party liability cover while filling up at a gasoline station.

faction and loyalty, while simultaneous- handling in its terms and conditions. In ing the year, particularly in Latvia and ly enhancing risk levels within the port- Lithuania, a changed organization of Lithuania. folio. In Lithuania, several similar ac- customer service operations improved However, If is focusing on profita- tions were taken successfully during the both quality and efficiency. In addition, ble growth in the Baltic countries and year. Within the segment for heavy road claims-handling efficiency was increased on increasing its preference among transports, for example, drivers have and the number of claims handled per customers. Based on the experiences been trained and practical training pro- employee rose by 40% during the year. gained from Estonian operations, in- vided in claims-prevention measures. Future focus creased centralization of work process- Cost control continues to account for The Baltic insurance market changed es will also help to enhance the profit- an important part of profitability. As a during the year, since a number of local ability and efficiency of the other two result of the higher acquisition cost for players expanded their operations to in- Baltic countries. Risk competencies, for insurance contracts, lower average pre- clude all Baltic countries. The competi- example, will be strengthened through miums and a low rate of automation tion has intensified somewhat, particu- in-house training programs and thor- within work processes, cost levels are larly within the segments that handle ough customer segmentation. Market higher in relation to those within the major risks, because international play- growth is expected to continue and may Nordic operations. Accordingly, con- ers have become increasingly active in even by complemented through the ad- tinued action was taken during the year the market. Competition also sharp- dition of new products within the per- to further increase the efficiency of the ened in the traffic damage area dur- sonal risk area. work processes within sales and other areas. The gradual centralization of the customer service helped to shorten ad- Gross premiums written Technical result ministrative times, reduce costs and in- Combined ratio crease customer satisfaction. In Estonia, MSEK MSEK MSEK % a service center was established for pri- 1,000 100 1,000 100 vate customers, which has created con- 800 80 800 80 ditions for increased efficiency and sales 600 60 600 60 growth. 400 40 400 40 As a result of ongoing process develop- 200 20 200 20 ment and efficiency improvements, If, 0 0 0 0 as the first company in Latvia, was able 2004 2005 2004 2005 2004 2005 to introduce time guarantees for claims Net premiums written Risk ratio Cost ratio Net premiums earned

If | If P&C Insurance 2005 15 HUMAN RESOURCES

Clear focus areas: skills development and management quality

The ability to attract, develop, retain and consolidate employee skills is important for future profitability, particularly in a service company such as If. The “Best in risk” venture launched during the year entails a greater focus on understanding and managing all aspects of customer risks. This means that employees will play a more central role. Correct expertise and the right level of motivation among employees are essential to this strategic approach. Accordingly, If further increased its level of ambition for skills development and management during the year.

Objectives and HR work at If • Successor planning aimed at Remuneration to senior executives If’s objective is to secure the perform- ensuring that the correct expertise About 8% of If employees are entitled ance and motivation of its employees. is available or is being developed to to a performance-based bonus, which The most important building blocks shoulder key positions in the future is related to the particular employee’s are ensuring that our employees have fixed salary and amounts to 10 - 75% of • Programs for supplementing the correct skills to achieve satisfactory basic salary. The distribution between the internal manager-supply results in work roles, that they are met basic salary and variable remuneration processes with external talents. with accessible and respectful leadership must be in proportion to the position A successful venture for recruiting and that they are developed toward re- holders’ responsibilities and author- future managers with 6 -10 alizing their full potential. It is also im- ity and be based on achieved results in years’ managerial experience was portant to have a motivating reward sys- relation to established targets and, to completed during the year. tem, good relations with trade unions the extent possible, linked to value crea- and effective HR administration. Employee profit-sharing program tion for the If Group. In 2005, a new All employees who do not receive man- incentive program for senior executives During the year, skills and management agement bonuses or commission par- was introduced as a replacement for the development and the supply of manag- ticipate in a Group-wide profit-sharing program in progress between 2001 and ers was in focus. If established the fol- program. Allocations from this pro- 2004. The program is linked both to lowing in 2005: gram are linked in part to If’s earnings Sampo-group’s performance and the • A company-wide skills organization trend and in part to the fulfillment of Sampo share performance over the term responsible for an annual skills targets by the individual employee and/ of the program and it will grant partici- analysis and renewal process or the working group to which the em- pants the possibility to bonus payments ployee belongs. The maximum alloca- in 2007 and 2008. • Company-wide management tion per employee is SEK 25,000 per evaluation year. • Analysis of skills to identify and develop employees with the greatest potential

Number of employees per country Age distribution Operating result per employee

Number Number Thousand SEK

1,200 2,000 2,000 1,000

1,500 1,500 800

600 1,000 1,000 400 500 500 200

0 0 0 Finland Sweden Norway Baltikum Denmark –20 21–30 31–40 41–50 51–60 61– 2004 2005 Women Men

16 If | If P&C Insurance 2005 Social responsibility

If promotes a safe and secure society

At the very core of property and casualty insurance is a promise to provide help when claims occur. Accordingly, the insurance industry, together with public authorities such as the police, emergency services and judicial system, is one of society’s most important providers of security to citizens and the business community. Insurance also provides companies with predictability and stability, which are necessary for being able to take business risks. Therefore, it is natural for If to strive for a society in which everyone can live securely.

The need for a well functioning insur- ena such as segregation and alienation, SAFETY ITEMS FOR ance system became very clear in 2005, for example by working with the Swed- CHILDREN AND as exemplified by the aftermath to the ish Fryshuset Youth Activity Center and ADULTS IN FINLAND tsunami disaster in Southeast Asia on the Norwegian Association of Anti- During 2005, If in Finland Boxing Day 2004, when somewhat ex- drug Police Officers. These organiza- distributed a total of traordinary efforts and new forms of co- tions work to prevent youths from com- 170,000 safety items to children and adults, with the aim of promoting the safety of its insurance operation within the industry were cre- ing into contact with drugs and crime. customers in accordance with If’s objective of ated. The insurance companies decided Several Nordic public welfare projects being a supplier of safety and security to the immediately to take collective respon- were launched by If in 2005, including Nordic market. The reflective vest campaign is a sibility so that all those affected by the the “Security Funds” in Finland, Nor- key feature of this work. At the end of the year, If disaster would quickly receive medical way and Sweden. Individuals and or- launched a campaign that involved distribution of care locally or be transported home to about 33,000 reflective vests to municipal daycare ganizations can apply for grants from Sweden. Thereafter, assistance was pro- centers and private child minders in Finland. these funds for local injury and crime- vided by handling claims quickly and ef- prevention efforts. If has also recently ficiently. “Through this campaign, we want to participate begun work to provide approximately in efforts to increase child safety when children If’s sponsorship must actively demon- 30,000 preschool children in Finland are outdoors, both in the dark and in daylight. The strate a social responsibility and primar- with reflective vests. In Sweden, a pilot campaign is part of If’s educational work aimed ily involve areas linked to insurance op- project called “Driving forces at If” has at promoting safety and preventing injuries,” says erations. If cooperates with organiza- also been started, in which personnel are Leena Saarimaa-Puosi at If. tions that actively contribute to making invited to participate during working society safer by working, on a long-term hours in social reform work, primarily In addition, approximately 117,000 Finnish basis, to discourage negative phenom- focusing on children and young people. households received a safety-promoting product or service. Against a backdrop of New Year firework displays, If in Finland also distributed 20,000 pairs of safety glasses, in cooperation with the Eye and Tissue Bank Foundation.¨

If | If P&C Insurance 2005 17 risks and RISK MANAGEMENT

Risks and risk management within If

The core business of a property and casualty insurance involves transferring the risk from the insured to the insurer. Accordingly, the insurance risk is the main risk associated with insurance operations. Operations are also subject to market risks deriving from the company’s investment activities.

If receives insurance premiums when an insurance contract is signed. In this con- Risks in insurance operations Risks in investment operations text, If makes an obligation to compensate the insured when insurance claims Interest-rate risk arise. If the number of claims or the Underwriting risk claims cost exceeds If’s original expectations, there is a risk that the received Share-price risk insurance premium will not cover dis- Provision risk Credit risk bursements and that the insurance operations will be unprofitable. Accord- Credit risk Liquidity risk ingly, the insurance risk in property and Currency risk Currency risk casualty insurance operations may be defined as the risk that insurance claims Operational risk Operational risk occur more frequently and/or with a larger result impact than anticipated. Solvency capital The insurance risk may be divided into A decisive factor determining the risk an insurance company can assume is the amount of capital the company can the underwriting risk and provision maintain as a buffer to meet its risks, meaning how much solvency capital the company has. risk. The underwriting risk relates to the pricing of insurance contracts and the inherent uncertainty associated with Investment operations are another im- denominated in, for example, Euro is them. Correct estimation of the scope portant part of an insurance company’s matched against the corresponding and frequency of insurance claims, so business. Market risks, such as chang- amount invested in Euro. that insurance premiums cover the es in interest rates, share prices or ex- If works actively to control and limit cost of anticipated claims, is the factor change rates, could have an impact on risks in order to achieve balanced ex- of greatest importance to profitability. If’s earnings. Most of If’s investment posure in relation to If’s total solvency However, the claims cost may deviate assets derive from the capital reserved to capital. A Dynamic Financial Analy- from expectations because, for exam- cover future claims payments. To ensure sis, DFA, model is used to analyze and ple, an individual major claim or claims that the assets cover the future claims quantify the accumulated risk. This is event occurs. In order to minimize the payments resulting from concluded in- conducted by means of statistical sim- underwriting risk, If adheres to detailed surance contracts, the investment assets ulations, whereby the probability of underwriting guidelines that ensure the are matched against insurance liabili- various outcomes for insurance opera- correct assessment and quantification of ties (the technical provisions), mainly tions and investment operations are ob- underwritten risks, regulate insurance on the basis of currency and duration. tained. amounts and define the type of risks that This means that an insurance contract may be accepted. ASSETS MATCHING LIABILITIES Insurance premiums are received in advance and claims are paid in arrears, Matched assets Currency Technical liabilities which means that a larger part of the Duration premiums needs to be reserved for fu- Global diversification Solvency capital ture claims payments (technical provisions). Technical provisions are posted that correspond to estimates of future claims payments. Since it is extremely difficult to exactly estimate final claims Read more about If’s risks and risk handling in the costs, the claims provision could prove Report of the Board of to be insufficient. The risk that the Directors published at technical provisions are insufficient is www.if-insurance.com and known as the provision risk. www.sampo.com

18 If | If P&C Insurance 2005 Five-year summary 1)

msek 2005 200 200 2002 20012) Condensed income statement Premiums earned, net of reinsurance 34,426 32,764 34,392 32,789 30,271 Claims paid, net of reinsurance -25,028 -24,105 -27,962 -27,985 -27,409 Operation expenses insurance, net -6,135 -6,233 -6,741 -6,815 -6,815

Allocated investment return transferred from the non technical account 1,537 1,816 1,935 2,332 1,982 Other technical income 164 406 - - - Other operating expenses -179 -178 - - - Technical result 4,785 4,470 1,624 321 -1,971

Investment return and other items 2,708 849 1,078 -2 401 683 Result before income tax 7,493 5,319 2,702 -2,080 -1,288 Income taxes -2,015 -1,290 -867 399 372 Minority interest - - - -1 -2 Net profit/loss for the year 5,478 4,029 1,835 -1,682 -918

Balance sheet, December 31, current value Assets Intangible assets 1,324 1,359 1,528 1,919 2,171 Investment assets 92,283 80,815 73,048 69,687 65,623 Reinsurers’ share of technical provisions 5,192 6,129 5,954 8,038 9,004 Deferred tax assets 1,113 1,643 2,178 2,999 2,604 Debtors 7,901 7,230 8,538 8,833 8,745 Other assets, prepayments and accrued income 5,066 4,296 4,286 4,807 6,347 Total assets 112,879 101,472 95,532 96,283 94,493

Shareholders’ equity, provisions and liabilities Shareholders’ equity 24,363 20,822 16,985 15,409 16,058 Subordinated debt 3,859 2,362 2,373 2,386 1,823 Deferred tax liability 3,087 1,921 1,670 1,831 2,359 Suplus/deficit in interest-bearing securities - - 338 721 47 Technical provisions 74,027 68,554 67,705 69,353 67,265 Creditors 4,645 5,013 4,379 4,819 4,752 Provisions, accruals and deferred income 2,898 2,800 2,112 1,764 2,189 Total shareholders’ equity, provisions and liabilities 112,879 101,472 95,532 96,283 94,493

Solvency capital 30,196 23,462 19,158 17,348 17,683

Key data, property and casualty insurance: Claims ratio 72.7% 73.6% 81.3% 85.3% 90.5% Expense ratio 17.8% 19.0% 19.6% 20.8% 22.5% Combined ratio 90.5% 92.6% 100.9% 106.1% 113.0% Cost ratio 24.3% 25.6% 26.6% 28.3% 30.4% Key data investments Total return 3) 5.8% 4.3% 4.6% 2.2% n.a. Other key data Regulatory capital 25,985 21,482 19,808 18,428 n.a. Regulatory solvency margin 5,938 6,368 5,972 5,493 n.a. Solvency ratio 87.5% 69.8% 53.8% 51.6% 56.8%

1) Since January 1, 2005, If has been applying International Financial Reporting Standards (IFRS). All figures pertaining to 2004 have been recalculated in accordance with these principles, while the figures for other years remain unchanged and are reported in accordance with the previously applied principles. 2) Unaudited pro forma figures for the comparative year 2001, including Sampo’s property and casualty insurance operations. 3) Calculations are based on principles used internally within If for the valuation of investment management operations.

If | If P&C Insurance 2005 19 Cash flow statement

msek 2005 2004

From insurance operations (net items) Premium payments, direct insurance 36,378 36,307 Claims payments direct business -23,336 -22,471 Reinsurance payments -292 -2,744 Operating expenses paid -5,847 -5,619 6,903 5,473

From investment operations Direct investment income 2,074 2,022 Net investments (-)/divestments (+) in investment assets -8,409 -7,678 -6,335 -5,656

From other financial operations (net) 203 444

Total cash flow for the year 771 262

Cash and Bank accounts Opening balances 1,560 1,298 Closing balances 2,331 1,560 771 262 The Group’s total overdraft facilities amounted to MSEK 213 (198). Utilized portion: MSEK 0 (-).

20 If | If P&C Insurance 2005 Income statement

MSEK 2005 2004 Technical account of property and casualty insurance Premiums earned, net of insurance Premium income, gross 36,658 35,958 Premium income, ceded -2,266 -2,981 Change in provision for unearned premiums and unexpired risks -106 -7 Reinsurers share of change in provision for unearned premiums and unexpired risks 140 -206 34,426 32,764

Allocated investment return transferred from the non-technical account 1,537 1,816

Other technical income 164 406

Claims incurred, net of reinsurance Claims paid Gross -24,077 -22,256 Reinsurers’ share 2,963 -187 Change in provision for claims outstanding Gross -2,401 1,963 Reinsurers’ share -1,513 301 -25,028 -24,105

Operating expenses Operating expenses insurance, net Gross -6,299 -6,654 Resinsurance commissions 164 331 -6,135 -6,233 Other operating expenses -179 -178 -6,134 -6,411

Technical result 4,785 4,470

Non-technical account Investment result Direct investment income 2,399 2,368 Gains and losses on investments 2,719 1,147 Investment expenses -158 -168 4,960 3,347

Allocated investment return transferred to the technical account -2,015 -2,289 Amortization, goodwill - - Interest expense, subordinated notes -237 -209 Result before income taxes 7,493 5,319 Taxes -2,015 1,290

Net profit of the year 5,478 4,029

If | If P&C Insurance 2005 21 Balance sheet

2005 2004 Assets on December 31, MSEK Intangible assets Goodwill 1,109 1,109 Other intangible assets 215 250 1,324 1,359 Investment assets Land and buildings 790 1,097 Loans to associated companies - 0 Investments in associated companies 34 32 Other financial investment assets 91,434 79,666 Deposits with ceding undertakings 25 20 92,283 80,815

Reinsurers’ share of technical provisions Provisions for unearned premiums and unexpired risks 458 310 Provisions for claims outstanding 4,734 5,819 5,192 6,129

Deferred tax assets 1,113 1,643

Debtors Debtors arising out of direct insurance operations 7,014 5,908 Debtors arising out of reinsurance operations 316 823 Other debtors 571 499 7,901 7,230 Other assets Tangible assets 270 301 Cash and bank balances 2,331 1,560 Securities settlement claims 115 221 2,716 2,082

Prepayments and accrued income Accrued interest and rent 1,067 876 Deferred acquisition costs 910 1,006 Other prepayments and accrued income 373 332 2,350 2,214

Total assets 112,879 101,472

22 If | If P&C Insurance 2005 2005 2004 Shareholders’ equity, provisions and liabilities on December 31, MSEK Shareholders’ equity Share capital 2,726 2,726 Statutory reserve 400 400 Other restricted reserves 186 159 Profit and loss brought forward 15,573 13,508 Net result for the period 5,478 4,029 24,363 20,822

Subordinated debt 3,859 2,362

Technical provisions, gross Provisions for unearned premiums and unexpired risks 15,281 14,443 Provisions for claims outstanding 58,746 54,111 74,027 68,554 Provisions for other risks and charges Deferred tax liability 3,087 1,921 Other provisions 1,452 1,243 4,539 3,164

Deposits received from reinsurers - -

Creditors Creditors arising out of direct insurance operations 1,333 1,498 Creditors arising out of reinsurance operations 298 417 Derivatives 1,402 1,161 Other creditors 1,612 1,937 4,645 5,013 Accruals and deferred income Reinsurers’ share of deferred acquisition costs 12 65 Other accruals and deferred income 1,434 1,492 1,446 1,557

Total shareholders’ equity, provisions and liabilities 112,879 101,472

Memorandum items Assets and corresponding collateral pledged for own liabilities 2,898 2,159 Assets covered by policyholders’ beneficiary rights 2,844 2,672 Contingent liabilities 585 368

If | If P&C Insurance 2005 23 Glossary and definitions

Insurrance terminology

Allocated investment return transferred to the type of insurance that covers the economic value of one or several ob- technical account Return on average technical jects (such as movable property in a home, car, boat, factory building or provisions, after deducting the capital employed in warehouse). Other types of property and casualty insurance mainly cov- insurance operations in the form of, for example, premium re- er various interests (such as business interruption insurance or liability ceivables, less reinsurance deposits and other assets plus half of the insurance), where only a specific economic interest is covered, not the technical result before allocated interest for the year. The allocated in- economic value of one or several objects. vestment return is based on risk-free interest. Provision for unexpired risks Provision to cover anticipated claims costs Cedent Direct insurance company that reinsures a part of its direct busi- and operating expenses for policies in force at the accounting date and ness with a reinsurer. up to their next due date. Claims frequency The observed relationship during a specific period Provision for unearned premiums Liability item in the balance sheet cor- between the number of claims arising within a certain category of insur- responding to the portion of premiums written that, in the financial ac- ance (a certain insurance portfolio) and the number of insurance policies counts, pertains to forthcoming years. Compare: premiums earned. within the same category (the portfolio). Does not include major claims. Provision for claims outstanding Liability item in the balance sheet con- Claims ratio Claims incurred in relation to premiums earned, expressed sisting of the estimated value of claims incurred but not yet paid and the as a percentage. expected operating expenses for the settlement of the claims. Combined ratio Claims incurred and operating expenses in relation to Regulatory capital base Reported shareholders’ equity after proposed premiums earned, expressed as a percentage. dividend less intangible assets plus untaxed reserves, subordinated Cost of insurance operations Sum total of operating expenses and loans and deferred tax liabilities. The capital base must satisfy the sol- claims costs. vency requirement. See solvency requirement. Cost ratio Claim handling costs and operating expenses from insurance Reinsurance A method of distributing risks whereby an insurance com- operations in relation to net premiums earned expressed as a percentage. pany purchases coverage for a part of its liability based on insurance or reinsurance contracts, so-called ceded reinsurance. Reinsurance accept- Deductible Part of the claims amount that the insured must account ed pertains to the business one insurance company accepts from other for himself, in accordance with the insurance terms, and which is thus insurance companies in the form of reinsurance. deducted from insurance compensation. Special deductibles exist in certain types of insurance, whereby a distinction is made between com- Retention The highest insured or claims amount relating to the same pulsory and voluntary deductibles. The latter leads to a reduction in the risk that an insurer retains for its own account, without reinsurance. premium. Return on equity Result for the year less taxes paid in relation to average Direct insurance Insurance business that relates to contracts concluded shareholders’ equity. between insurers and insured. The insurance company is directly re- Risk ratio Ratio between insurance claims, excluding claims-adjustment sponsible in relation to the insured. costs, and premiums earned, expressed as a percentage. Direct return Operating surplus from land and buildings, dividends Risk selection The insurer’s selection of the type of risks to be included from shares and participations and interest income. in his portfolio. Risk selection is of major importance to an insurance Expense ratio Ratio between operating expenses and premiums earned company, in part because it facilitates, to the extent possible, a balanced expressed as a percentage. business, which normally has a favorable impact on operating results. Gross premiums written Total premiums received during the financial Solvency capital Shareholders’ equity less deferred tax assets plus un- year or taken up as a receivable at the end of the year. In contrast to net taxed reserves, subordinated loans and deferred tax liability. premiums earned, premiums written are not capitalized; i.e. they are Solvency ratio Key ratio representing the relative size of solvency capi- unaffected by opening and closing provisions for unearned premiums. tal. The solvency ratio is calculated as solvency capital in relation to net Insurance margin Technical result excluding other technical income and premiums written, excluding portfolio premiums. Compare with sol- expenses in relation to net premiums earned, expressed as a percentage. vency capital. Compare with Technical result. Solvency requirement (solvency margin) The lowest permissible capital Investment assets Assets that resemble a capital investment, including required for insurance operations from the viewpoint of the supervi- real estate and securities, as well as all investments in group and associ- sory authorities. The requirement is based on the historical claims out- ated companies. come or gross premiums written, whichever is higher. Investment return Net of following income and costs: interest income/ Technical provisions Provisions for unearned premiums, unexpired expense, dividend on shares and participations, surplus/deficits from risks and claims outstanding. own properties, all realized and unrealized changes in fair value of real Technical result Premiums earned less claims costs and operating ex- estate, shares and participations, interest-bearing securities and expenses, plus the allocated investment return transferred from the non- change-rate gains/losses. technical accounts and other technical income. Net premiums written Gross premiums written less ceded reinsurance Total investment return Sum total of direct return and realized and un- premiums. realized changes in value expressed as a percentage of the fair value of Operating expenses in insurance operations Expenses related to the ac- investment assets. The daily time weighted method has been used to quisition or renewal of insurance contracts plus corporate administra- calculate the return on active investments. The monthly time weighted tion costs. method has been used to calculate the return on properties and other investments. The return has been calculated with the calculation meth- Operating result Profit/loss before appropriations and taxes. ods used internally by If for the evaluation of asset management. Premiums earned That portion of gross premiums written that pertains Underwriting result Item in the technical accounts comprising premi- to the fiscal year, meaning premiums written adjusted for changes in the ums earned less claims and operating costs. provision for unearned premiums. Underwriting Includes the risk assessment and pricing conducted when Prior-year claims result Profit or loss that arises when claims originating insurance contracts are drawn up. In accounting contexts, the term from a prior year are either finally settled or revalued. is also used more broadly to designate the operations of an insurance Property and casualty insurance Collective term for property insurance, company that do not have the character of asset management. liability insurance and reinsurance. Property insurance involves the

24 If | If P&C Insurance 2005 Addresses

SWEDEN FINLAND DENMARK LATVIA

STOCKHOLM HELSINKI COPENHAGEN RIGA If If If If SE-106 80 Stockholm FIN-00025 If 2650 Hvidovre Kronvalda bulvaris 3 Street address: Barks väg 15 Street address: Street address: Stamholmen 159 LV-1010 Riga Telephone: +46 771 43 00 00 Hallonnäsgränd 8A / Telephone: + 45 70 12 24 24 Telephone: Vattuniemenkuja 8A www.if.dk +37 17 094 777 GOTHENBURG Telephone: +358 10 515 10 www.if.lv If ESTONIA SE-405 36 Gothenburg TURKU LITHUANIA Street address: Vikingsgatan 4 FIN-20035 If TALLINN Telephone: +46 771 43 00 00 Street address: Kalevavägen 3/ If VILNIUS Kalevantie 3 Pronksi 19 If SUNDSVALL Telephone: +358 10 515 10 EE-10124 Tallinn Zalgirio Str. 88 If www.if.fi Telephone: LT-2004 Vilnius PO Box 190 +37 26 671 099 Telephone: SE-851 03 Sundsvall NORWAY www.if.ee + 370 5 210 9800 Street address: www.if.lt Universitetsallén 2 OSLO Telephone: +46 771 43 00 00 If PO Box 240 MALMÖ NO-1326 Lysaker If Street address: Lysaker Torg 35 Västra Varvsgatan 19 Telephone: +47 980 02400 Telephone: +46 771 43 00 00 www.if.no www.if.se

The information in this folder is based on If P&C Insurance Holding Ltd’s annual report for 2005 and has not been examined by the Company’s auditors. If P&C Insurance Holding Ltd’s complete annual report for 2005 is available at www.if-insurance.com and www.sampo.com.

This folder is also available in Swedish and Finnish. In the event of any differences in the language versions, the Swedish version shall prevail.

Concept, graphic design and layout: Miltton Oy | Photographers: Horst Neumann and Petri Artturi Asikainen | Translation: The Bugli Company, Tmi Tina Pettersson- Mäki, Uddevalla Språkkonsult, Olof Sandberg | Photographs: Tapani Kyrki (cover and case, Sampo Group Review), Olli Pulkkanen (cover, Banking and Long-term Savings), Maria Ervasti (cover, If P&C Insurance), Evelyn Karming (page 15) | Printing: Libris, Helsinki 2006 | Sampo plc, registered domicile Helsinki, business ID 0142213-3

If | If P&C Insurance 2005 25