Final Results

SAMPO PLC         STOCK EXCHANGE RELEASE         1 (48)

            15 February 2006, at 9.30 a.m.

 

 

Sampo Group's results for 2005

 

RETURN TARGETS EXCEEDED BY A WIDE MARGIN

 

Sampo Group's profit before taxes in 2005 grew by EUR 347 million and was EUR 1,295 million (948). RoE for the Group was 28.4 per cent (26.5), clearly exceeding the target of 19 per cent. Earnings per share amounted to EUR 1.68 (1.46). Taking the change in the fair value reserve into account, earnings were EUR 1.97 per share (1.58). The Board proposes to the AGM a dividend of EUR 0.60 per share and an authorisation to repurchase Sampo shares. Net asset value per share rose to EUR 7.67 (6.16).

 

- Profit before taxes for banking and investment services rose to EUR 316 million (274). Both net interest income and fees and commissions grew significantly. Market share in the Finnish housing loan market increased to 15.5 per cent (14.3). Banking and investment services had an RoE of 23.1 per cent, thus exceeding its RoE target of 20 per cent.

- The combined ratio for P&C insurance decreased to 90.5 per cent for the full year 2005 (92.6). With a good investment yield, the profit before taxes rose to EUR 800 million. Net investment income amounted to EUR 460 million. RoE clearly surpassed the target of 17.5 per cent and was 24.1 per cent.

- Profit before taxes for life insurance rose to EUR 234 million (142). The change in the fair value reserve in 2005 amounted to EUR 170 million. RoE reached 39.0 per cent surpassing the target of 17.5 per cent. Net investment income, excluding the investments on unit-linked contracts, was EUR 423 million (285).

 

 

* ) Less full deferred tax.  **) Year 2005  figure is the Board of Director's dividend proposal.

 

The figures in this report are unaudited.

Sampo Group has prepared the consolidated financial statements for 2005 in compliance with International Financial Reporting Standards (IFRSs) as adopted by the EU, and effective at 31 December 2005.

 

SAMPO GROUP

 

Sampo Group's profit before taxes in 2005 amounted to EUR 1,295 million (948). Earnings per share rose to EUR 1.68 (1.46). Taking into account the change in the fair value reserve, earnings per share were EUR 1.97 (1.58). Sampo Group's RoE target of 19 per cent was surpassed as the RoE climbed to 28.4 per cent (26.5). Net asset value per share increased to EUR 7.67 (6.16).

 

In December the first payout from the management's long-term incentive schemes was made. The payout of the schemes is dependent on Sampo's financial and share price performance. Payments under the schemes cover the financial years 2005 - 2008. At 31 December 2005 the total provision for management incentive schemes, including social security costs, was EUR 38.1 million and the impact on the year 2005 result was EUR 22 million.

           

The Group's equity on 31 December was EUR 4,348 million (3,465). Equity was strengthened by the profit for the period, the increase in the fair value reserve and new capital through subscriptions with option rights. Equity was reduced by the dividends paid in April, the repurchase of Sampo A shares in June - July and exchange rate effects.  As of 1 January 2005 Sampo Group's capital adequacy has been measured by the Finnish rules on conglomerate capital adequacy based on the European Union's Directive 2002/87/EU. At the end of December 2005 Sampo Group's own funds exceeded the minimum solvency requirements by EUR 2,123.6 million and the solvency ratio was 196.1 per cent (170.6).

 

Sampo Group's balance sheet total grew by 13 per cent to EUR 42,985 million. Asset growth was fastest in loans to customers in the banking and investment services segment, which grew by EUR 3,094 million to EUR 18,483 million and in investment assets of the insurance segments, which grew from EUR 13,903 million to EUR 15,332 million. In addition, unit-linked investments increased to EUR 1,262 million (882). On the liability side of the balance sheet, debt securities in issue increased by EUR 1,836 million to EUR 8,461 million. Sampo Housing Loan Bank's covered bond issue of September 2005 represents EUR 1 billion of the growth.

 

 

 

Final quarter of 2005

 

Sampo Group's profit before taxes for the fourth quarter of 2005 was EUR 288 million (280). Earnings per share were EUR 0.39 (0.33). The increase in net asset value per share was EUR 0.28 from the end of the third quarter of 2005, and net assets per share amounted to EUR 7.67.

 

Profit before taxes in banking and investment services for the fourth quarter was EUR 86 million (50). The profit includes a sales gain of EUR 24 million from the sale of the Polish operation. Net interest income grew to EUR 90 million (83) as lending growth more than compensated for the decrease in margins. Fees and commissions continued to develop favourably and credit quality remained good.

 

In the fourth quarter the combined ratio of P&C insurance was 87.6 per cent (90.1). The mild winter conditions supported good claims development and the profit before taxes amounted to EUR 174 million (189). The expense ratio in the fourth quarter improved further and was 17.7 per cent (18.3).  Net income from investments amounted to EUR 59 million (76).

 

Profit before taxes in life insurance operations rose to EUR 48 million (45). The fair value reserve decreased in the fourth quarter by EUR 36 million. Net investment income was EUR 144 million (94), as high equity returns continued. Premiums written were EUR 217 million (175).

 

The Other segment made a loss before taxes of EUR -14 million in the fourth quarter (-3), mainly because of the EUR 10 million interest expenses relating to the If transactions in 2004.

 

 

Full Year 2005

 

Changes in Group structure

 

Sampo Group streamlined its legal structure to better correspond to the reporting structure in 2005. These reorganisations improve governance and operational efficiency. In addition, Sampo Group established new companies to support core businesses and disposed of non-core operations.

 

In April 2005, Sampo Life Insurance Company Ltd was granted permission to pursue life insurance business in Sweden. The new company, If Livförsäkring AB, is fully owned by Sampo Life. The new company writes mainly term life insurance. Sampo Life also gained permission to expand its operations to Norway and has established a branch office there in order to offer policies under the OTP pension scheme.

 

Arvo Asset Management Ltd, established in May 2005 by Sampo plc, commenced operations on 21 September 2005. The new asset management company focuses on value stocks. Sampo initially owns 62 per cent and will in the future own at least 51 per cent of the company, with the remainder being held by the management. The new company enhances Sampo's strategy in long-term savings.

 

In June 2005, Sampo plc signed a binding agreement to sell its subsidiaries 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. The transaction was closed in December 2005 when the necessary official permits were obtained. The operations were considered non-core and the transaction released capital for growth in focus areas. The consideration was EUR 95 million, of which Sampo recognises a sales gain of EUR 24 million in the banking and investment services segment. Sampo wrote down most of the companies' goodwill in 2002.

 

The Baltic P&C insurance companies AS If Eesti Kindlustus, AAS If Latvia and AB If Draudimas (Lithuania) owned by If P&C Insurance Company Ltd (Finland) were transferred to the ownership of If P&C Insurance Holding Ltd in November 2005. The transaction streamlines the corporate structure of If and has no effect on the results.

 

Sampo Life Insurance Company Ltd decided in December 2005 to combine its subsidiaries operating in Estonia, Latvia and Lithuania into one legal company operating in all Baltic countries. The rearrangement will simplify and strengthen the structure of the Baltic life insurance operations and will improve efficiency. AAS Sampo Dziviba, operating in Latvia, and AB Sampo gyvybes draudimas, operating in Lithuania, will be merged into the Estonian company, AS Sampo Elukindlustus, which at the same time will be converted into a European company to be named SE Sampo Life Baltic and domiciled in Tallinn. The transactions are conditional on the receipt of necessary official permits by the authorities of the respective Baltic countries.

 

Sampo plc decided in November 2005 to sell its fully-owned subsidiary Mandatum Private Equity Funds Ltd to Amanda Capital Plc. The transaction was completed on 9 December 2005 after the approval of Amanda Capital's Extraordinary General Meeting. The consideration was EUR 4 million.

 

The investment services companies owned by Sampo plc were transferred to the ownership of Sampo Bank plc on 30 December 2005. The transferred companies were Mandatum & Co Ltd, Sampo Fund Management Ltd, 3C Asset Management Ltd, Mandatum Asset Management Ltd, Mandatum Stockbrokers Ltd and Arvo Asset Management Ltd.

 

Administration

 

The Annual General Meeting held on 11 April 2005 re-elected the earlier 8 members - Tom Berglund, Anne Brunila, Georg Ehrnrooth, Jyrki Juusela, Olli-Pekka Kallasvuo, Christoffer Taxell, Matti Vuoria and Björn Wahlroos - to the Board. At its inaugural meeting the Board re-elected Olli-Pekka Kallasvuo as Chairman and Jyrki Juusela as Vice Chairman.

 

The Annual General Meeting approved the financial accounts for 2004 and discharged the Board of Directors and the Chief Executive Officer from liability. The Annual General Meeting also decided, in accordance with the proposal of the Board of Directors, to pay a dividend of EUR 0.20 per share for 2004. The dividend was paid on 21 April 2005.

 

In addition, the Annual General Meeting approved the following amendments, as proposed by the Board, to the Articles of Association:
-  In accordance with Article 2 of the Articles of Association, Sampo plc's domicile was changed from Turku to Helsinki, where Sampo plc's head office and administrative domicile are already located.
- Paragraph 3 of Article 8 of the Articles of Association and the reference contained therein to the age of Board members at the beginning of their term of office was deleted.
- The reference in Paragraph 2 of Article 17 of the Articles of Association to the publication of a Notice of General Meeting in a newspaper published in Turku was deleted due to the above-mentioned amendment to Article 2 of the Articles of Association.

 

The firm of authorised public accountants, Ernst & Young Oy, was re-elected Auditor.

 

The Annual General Meeting of Sampo Life Insurance Company Ltd held on 17 March 2005 decided to simplify the company's administrative structure and to terminate the company's Supervisory Board. The Articles of Association were amended accordingly.

 

On 25 January 2005 Sampo plc's Board of Directors nominated three new members to the Group's Executive Committee. They were Gunnar Rogstad, responsible for the If Private business area, Ivar Martinsen, responsible for the If Commercial business area and Ricard Wennerklint, CFO of If. At the same time the Board also appointed a Group MD Committee, consisting of Björn Wahlroos, Group CEO and President (Chairman), Kari Stadigh, Group Deputy CEO, Torbjörn Magnusson, President of If, Mika Ihamuotila, President of Banking and Patrick Lapveteläinen, CIO. Ilona Ervasti-Vaintola, Chief Counsel, was chosen as Secretary.

 

On 5 April 2005, Sampo plc's Board of Directors appointed Morten Thorsrud as Head of If Industrial business area.

 

On 22 June 2005 the Board nominated Line Hestvik as Head of If Private business area and member of Sampo Group's Executive Committee. Line Hestvik replaced Gunnar Rogstad as a member of the Board of If P&C Insurance Ltd in Sweden and If P&C Insurance Company Ltd in Finland and also as a member of Sampo Group's Executive Committee.

 

Changes were made to Sampo Bank's Board of Directors at 15 October 2005. Björn Wahlroos, Group CEO and President, became Chairman of the Board of Sampo Bank, while the other Board members are Patrick Lapveteläinen, Ilkka Hallavo, Mika Ihamuotila and Maarit Näkyvä. At the same time, Mika Ihamuotila was appointed as President of Sampo Bank. He already had the overall responsibility for all of Sampo's banking and investment services operations. Ilkka Hallavo and Maarit Näkyvä were appointed as Executive Vice Presidents of Sampo Bank, with Hallavo being deputy to Ihamuotila. These appointments were linked to the streamlining of the legal structure of Sampo's banking and investment services segment.

 

Hannu Kokkonen, Managing Director of If P&C Insurance Ltd (Sweden) and of If P&C Insurance Company Ltd (Finland) will retire in the first half of 2006. Ricard Wennerklint was appointed to succeed him as Managing Director of If P&C Insurance Ltd (Sweden) as of 1 January 2006.  Petri Ekman was appointed Deputy Managing Director of If P&C Insurance Company Ltd (Finland) in November 2005. Kokkonen will continue to act as Managing Director of If P&C Insurance Company Ltd (Finland) until his retirement. 

 

 

Changes in share capital

 

The Annual General Meeting of 11 April 2005 authorised the Board of Directors to repurchase Sampo's own shares. The authorisation is valid until 11 April 2006. The maximum amount of A shares that can be repurchased is 5 per cent of the company's share capital or of the number of votes attached to all shares. Shares can be bought back either through 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 Helsinki Stock Exchange. Shares can only be repurchased to be cancelled.

 

On 22 June 2005, the Board of Directors decided, pursuant to the above-mentioned authorisation, to repurchase a maximum of 7 million Sampo A shares through public trading on the Helsinki Stock Exchange. Repurchases started on 29 June 2005 and continued until the maximum amount was achieved on 13 July 2005. EUR 87.7 million was used to acquire the shares. At 31 December 2005 Sampo plc held 7 million of its own A shares, corresponding to 1.2 per cent of the total amount of shares and votes. The repurchased shares corresponded to EUR 1.2 million in share capital.

 

A total of 5,755,650 subscriptions of shares with the warrants of Sampo plc's 1998 option programme and 1,800,250 subscriptions with the warrants of 2000 option programme were submitted to the Board and approved in 2005. The subscriptions increased the share capital by EUR 1,270,811.18. The subscription period for the 1998 option programme ended on 31 May 2005 and trading in these warrants on the Helsinki Stock Exchange was terminated on 24 May 2005. The subscription period for the 2000 option programme ends at 31 January 2007 and at the end of the year 4,838,950 warrants were outstanding, of which Satura, a fully-owned subsidiary of Sampo plc, held 1,030,250 warrants. At maximum, if all subscription rights were to be exercised, Sampo plc's share capital would increase by EUR 4,069,264.92, corresponding to 4.2 per cent of share capital at the end of 2005.

 

Furthermore, subscriptions with the warrants of the 2000 option programme for 382,200 A shares were approved by the Board at 20 January 2006. As the subscriptions were already submitted in 2005, the new shares are entitled to dividends for the year 2005.

 

At 31 December 2005 Sampo plc's share capital amounted to EUR 96,088,842.74, and the number of A shares totalled 570,118,315. The total number of shares of the company, including 1,200,000 B shares, was 571,318,315.

 

To facilitate the payment of year 2004 dividends, a new share category called Sampo Uudet (Sampo New) was taken on the main list of the Helsinki Stock Exchange as of 1 January 2005. The Sampo A shares subscribed for with warrants from the 1998 or 2000 option programmes after 31 December 2004 were entitled to dividends only after the dividend for 2004 had been paid. The new category was merged with Sampo A shares in April 2005.

 

At 18 February 2005 Sampo received a disclosure under chapter 2, section 9 of the Securities Markets Act, according to which the Finnish government's holding in Sampo A shares and voting rights had decreased below 15 per cent. The Finnish government also informed Sampo that it had agreed to a lock-up of its remaining Sampo shares for 90 days.

 

At 5 July 2005 Varma Mutual Pension Insurance Company notified Sampo that its holding of Sampo A shares and voting rights had decreased below 15 per cent. At 1 November 2005, Sampo received a disclosure according to which the total number of Sampo A shares held by Barclays plc and the funds managed by it had risen above 5 per cent of Sampo plc's entire stock. Two weeks later, at 16 November, a new notification was received from Barclays plc stating that the total number of Sampo A shares owned by Barclays plc and the funds managed by it had decreased below 5 per cent.

 

Staff

 

The number of full-time equivalent staff decreased in 2005 by 173 employees to 11,627 employees at 31 December. Of the staff, 37 per cent worked in banking and investment services, 56 per cent in P&C insurance, 3 per cent in life insurance, 1 per cent in the holding company and 4 per cent in Primasoft. Geographically, 52 per cent worked in Finland, 16 per cent in Sweden, 14 per cent in Norway, 13 per cent in the Baltic countries, 4 per cent in Denmark and 1 per cent in other countries. The staff decreased in P&C insurance and Primasoft, but increased in banking due to growth in the Baltic subsidiaries. The average number of employees during 2005 was 11,730, compared with 11,898 during 2004.

 

Ratings

 

Standard & Poor's Ratings Services raised its long-term counterparty credit and insurer financial strength ratings on Sweden-based If P&C Insurance Ltd (publ) and Finland-based If P&C Insurance Company Ltd to 'A' from 'A-' on 11 October 2005. At the same time, Standard & Poor's raised its counterparty credit

ratings on Sampo Bank plc to 'A/A-1' from 'A-/A-2'. The outlook is stable in both cases. According to Standard & Poor's, the upgrades reflect continued outperformance of earnings expectations and the Group's significantly reduced financial leverage. On 31 December 2005 the ratings were as follows:

 

 

 

Group solvency

 

New rules on calculating solvency for financial conglomerates entered into force at 1 January 2005. Group solvency consists of the difference between the group's own funds and the minimum requirement set for them. The rules determine the own funds and minimum own funds requirements for subsidiaries and associated companies operating in the banking or insurance sector to be calculated according to sectoral rules. In the group solvency calculation, funds that cannot be used to cover losses in other group companies are not taken into consideration. Sampo Group applies the consolidation method to calculate its solvency position. The Group's solvency ratio (own funds in relation to minimum requirements for own funds) at 31 December 2005 was 196.1 per cent (170.6).

 

 

 

Risk management

 

The main objective of risk management is to ensure that the capital base is adequate in relation to the risks arising from business activities. The risks in Sampo Group are described and aggregated internally through economic capital, which describes the amount of capital needed to bear different kinds of risks. The economic capital tied up in the Group's operations was EUR 3,148 million (2,992). The requirement is well covered by equity and capital securities. The major risks associated with Sampo Group's activities are credit risk arising from banking and investments, the market risks of investment portfolios, the interest rate and liquidity risks of the banking book and insurance risks. Operational risks and various business risks such as changes in competition or customer behaviour are inherent in all business areas. The perceived risks in the businesses and operating environment did not change significantly during 2005.

 

 

Banking and investment services

 

Sampo Group's main banking and investment service companies are organised under Sampo Bank plc and its subsidiaries. Sampo Bank plc operates mainly in Finland and through subsidiaries in all the Baltic countries. The investment services companies are Sampo Fund Management Ltd, Mandatum Asset Management Ltd, Mandatum Securities Ltd (former Mandatum Stockbrokers Ltd), Mandatum & Co Ltd, 3C Asset Management Ltd and Arvo Asset Management Ltd. Sampo Bank's branch network also operates as a distribution channel for other products like life insurance and offers financial advisory services. Sampo Bank opened a new branch office for corporate clients in Stockholm in September. Sampo also announced a plan to launch banking operations in Russia.

 

 

The year 2005 was characterised by strong growth in retail lending and mutual funds. Total operating income in banking and investment services was EUR 736 million (682) and expenses were EUR 420 million (403). Profit before taxes rose to EUR 316 million (274). Net interest income rose to EUR 341 million (322), with more than half of the growth being derived from the Baltic operations. In Finland, strong growth in lending volumes more than compensated for tightening of spreads. Operating expenses rose mainly because of growth in the Baltic operations and modest wage inflation in Finland. The cost to income ratio improved to 57.3 per cent (60.0). RoE was 23.1 per cent.

 

Core operational performance showed a clear improvement because net interest income and fee income rose, while expenses increased to a lesser extent. The profit before taxes includes similar-size major one-off items both in 2005 and 2004. In 2005 the profit before taxes includes sales gains from private equity worth EUR 32 million, a EUR 24 million gain from disposal of the Polish operation and a EUR 2 million sales gain from Mandatum Private Equity Fund Ltd. The comparison period includes one-off income of EUR 25 million in private equity gains and EUR 23 million from a VAT refund. In addition, the comparison figure contains Sampo Credit plc which was merged into Sampo plc in September 2004. The merger reduced net interest income and its year-on-year impact was EUR 9 million.

 

Net fee and commission income grew to EUR 221 million (197) mainly because the growth in mutual funds and asset management continued. Lending and investment banking fees also grew strongly, partly because of strong activity in the M&A and equity market. Mutual fund assets grew by 31 per cent to EUR 8,885 million (6,783), with the biggest increases in balanced and bond funds. New equity funds investing in emerging markets were launched successfully. Assets include EUR 1.2 billion (1.3) in intra-Group investments. Sampo's market share of the assets of mutual funds registered in Finland was 19.9 per cent (22.0) at 31 December 2005.

 

The growth of loans and advances was fast throughout the period and the total of EUR 18,483 million was 20 per cent higher than one year earlier. Sampo Bank's market share of all loans granted by Finnish financial institutions was about 14.3 per cent (13.8) and its market share of lending to households in Finland was 14.1 per cent (12.9). Housing loans grew extremely strongly by 31 per cent in total and 26 per cent in Finland, exceeding the market growth of 17 per cent. Sampo Bank's market share of Finnish housing loans rose to 15.5 per cent (14.3). Growth in housing loan market share also widens the possibilities to offer other Sampo Group's financial services. Consumer credit rose by 18 per cent and especially credit card loans grew significantly.

 

The Baltic operations continued high volume growth and the lending volume exceeded EUR 1.4 billion (0.8). The distribution network was expanded by increasing the number of branches to 16 in Estonia, to 12 in Lithuania and to 2 in Latvia.  The Estonian and Lithuanian operations grew substantially in 2005 with the number of customers reaching 129,900 in Estonia and 46,900 in Lithuania. Most of the increase came from new retail customers, who are the main focus in the Baltic countries. Housing loans, in particular, grew rapidly all year. The profit before tax of the Baltic banks was EUR 14 million (8).

 

Corporate lending grew by 14 per cent and off-balance sheet commitments by 15 per cent to EUR 6.9 billion. Spreads in corporate lending remained fairly flat. Credit quality remained good. Net impairment on loans and receivables was positive and added EUR 3 million (11) to the profit.

 

Deposits rose to EUR 11,442 million (10,410) at the end of the year. Sampo Bank's market share of domestic deposits by the public at the end of the year was 12.8 per cent (12.7). Faster growth in lending has created a need for additional funding, which was mainly achieved by issuing senior bonds. Sampo Bank Group also diversified its funding by activating Sampo Housing Loan Bank plc, which issued the first Nordic benchmark-size EUR 1 billion covered bond in September 2005. The issue is covered by EUR 1.1 billion in housing loans transferred from Sampo Bank to the Sampo Housing Loan Bank.

 

Sampo Bank Group's capital adequacy was 10.6 per cent (10.7). The tier 1 ratio was 7.6 per cent (7.3) and tier 1 capital rose to EUR 1,255 million (1,000) due to retained profits and an issue of a EUR 125 million capital loan. Risk-weighted assets grew 20 per cent to EUR 16,466 million because of the strong growth in lending. A dividend of EUR 72 million, of which EUR 50 million came from Sampo Bank plc, is planned for distribution to the parent company, Sampo plc, in early 2006. Because of its good capital position, Sampo Bank is well-placed to continue its healthy growth.

 

 

P&C insurance

 

If is the leading property and casualty insurance company in the Nordic region, with insurance operations that also encompass the Baltic countries. If P&C Insurance Holding Ltd,  headquartered in Sweden, is the parent company for property and casualty insurance within the Sampo Group. Business operations are conducted via subsidiaries and branch offices in the Nordic and Baltic countries.

 

 

In the first quarter of 2004 Sampo plc's holding in If P&C was 38.05 per cent and the company was treated as an associated company. As of 1 April 2004 the company has been fully consolidated in Sampo Group's accounts. Accordingly, the comparison figures only reflect the last three quarters of 2004.

 

In If's six year-long history, 2005 was the most profitable year so far. Profit before taxes for the P&C insurance operations rose to EUR 800 million (427). The strong result was accomplished by a sound insurance result and a good investment yield. The RoE target of 17.5 per cent was clearly exceeded with an RoE of 24.1 per cent. The technical result was EUR 516 million (490), of which the Private business area accounted for 58 per cent, Commercial for 30 per cent, Industrial for 10 per cent and the Baltics for 2 per cent. The insurance margin - technical result in relation to net premiums earned - rose to 13.9 per cent (12.9).

 

The combined ratio improved by 2.1 percentage points to 90.5 per cent (92.6). Efforts both to exploit the economies of scale in If's Nordic concept and to improve the quality of risks in If's portfolio have been pursued determinedly. Large claims development in the Commercial business area was EUR 30 million better than normal, but in the Industrial business area large claims increased from 2004 and were at a normal level in 2005. The Gudrun storm in January 2005 led to claims payments of EUR 22 million after reinsurers' share and a reinstatement fee of EUR 11 million. The risk ratio decreased by 0.8 percentage points to 66.2 per cent. Claims inflation continued to be very low. EUR 39 million was released from technical reserves relating to prior year claims.

 

The cost ratio improved by 1.3 percentage points to 24.3 per cent. Total costs decreased to EUR 931 million mainly driven by staff reductions, IT savings and lower commission costs. The cost ratios improved for the whole operation and in each and every business area. The improvement was particularly positive in the Finnish operation, which was subject to a comprehensive cost reduction programme.

 

Premiums grew by 2 per cent to EUR 3,709 million. Premiums grew by 3 per cent in the Private business area and by 16 per cent in the Baltics. In the Commercial business area, premium income was flat and in Industrial premiums decreased by 3 per cent.

 

At 31 December 2005, If's total investment assets amounted to EUR 10.0 billion (8.9). Of all investment assets, 88 per cent was invested in fixed income instruments (84), 10 per cent in equity (12) and 2 per cent in other assets (4). Investment income rose to EUR 460 million (160), largely because of the good performance of equity investments. The return on investment was 5.8 percent (4.3). At 31 December 2005 the duration for interest-bearing assets was 2.4 years.

 

The solvency ratio - i.e. solvency capital in relation to net premiums written - rose to 87.5 per cent (69.8) and solvency capital increased to EUR 3,216 million (2,499). Shareholders' equity rose to EUR 2,595 million (2,218).  If issued non-cumulative capital contribution securities of EUR 150 million in June 2005 increasing the solvency ratio by 4 percentage points. A dividend of SEK 4,000 million (approx. EUR 430 million) is planned for distribution to the parent company, Sampo plc, in early 2006. The average duration of liabilities was 4.7 years at 31 December 2005. Technical reserves at the end of 2005 were EUR 7,885 million (7,302) and were 156.6 per cent (144.0) of premiums written.

                     

If and Ford Credit Europe FCE Bank plc signed a frame agreement on car-branded insurance for Ford, Jaguar, Land Rover, Mazda and Volvo in December 2005. Car owners will be offered a specially designed insurance for their own car brand. The insurance will be marketed by franchised car dealers and by If.
The five-year frame agreement covers Denmark, Finland (excl. Land Rover), Norway and Sweden. The new car-branded insurance policies will be launched gradually during 2006. Altogether, the five Ford car brands have an average Nordic market share of about 20 percent of new car sales.

 

If launched several new personal and employee benefit insurance products during 2005. These products reached a good sales volume already in the first year as 65,000 contracts were signed. Private clients who concentrate their insurance policies with If are rewarded by lower deductibles and premium rebates. This project, called If Plus, was launched in Sweden and Norway and it extends to other services, such as free change of winter tires, for loyal customers.

 

Life insurance

 

Sampo Life Group consists of Sampo Life, a wholly-owned subsidiary of Sampo plc, operating in Finland and of its subsidiaries in all the Baltic countries. The company also has a subsidiary in Sweden to complement the product offering of If P&C.

 

 

Profit before taxes for Sampo Group's life insurance operations was EUR 234 million (142). The result was supported by net investment income, which rose to EUR 423 million (285), excluding the return on investments in unit-linked contracts of EUR 163 million (53). The fair value reserve grew by EUR 170 million in 2005. The yield on investments at market values was up to 11.5 per cent (8.5) largely because of favourable equity market development. The RoE target of 17.5 per cent was surpassed by a wide margin, as the RoE of life insurance operations amounted to 39.0 per cent.

 

At 31 December 2005 the investment assets of life operations, excluding the assets of EUR 1.3 billion (0.9) covering unit-linked contracts, amounted to EUR 5.9 billion (5.3) at market values. Of these assets, fixed income covered 64 per cent (57), equity 33 per cent (38) and real estate 3 per cent (5). Equity investments include direct equity holdings, equity funds and private equity.

 

At the end of the financial year Finnish investments accounted for 40 per cent (35) of all investments, the rest of the euro zone for 29 per cent (29) and other foreign investments for 31 per cent (36). Finland's share of equity investments was 57 per cent (56).

 

Particular attention was given to cost control in 2005.  As a result the expense ratio decreased to 93.4 per cent (100.6). If all fees intended to cover the operating expenses were taken into account, the ratio would decrease to 83.5 per cent (90.0).

                                   

The solvency capital of Sampo Life Group amounted to EUR 1,077 million (852) and the solvency ratio rose to 21.3 per cent of technical reserves (17.7). The extended solvency capital of Sampo Life was EUR 1,410 million (1,142).  A dividend of EUR 150 million, which will be paid to Sampo plc in March 2006, has been deducted from the solvency capital.

 

Life insurance technical reserves on own account amounted to EUR 6,000 million (5,510), of which unit-linked insurance reserves were EUR 1,262 million (884). The share of unit-linked reserves of total technical reserves grew to 21.0 per cent (16.0). Policyholders of Sampo Life received a bonus of 0 - 2.0 per cent depending on the guaranteed rate of their policies and the total bonuses amounted to EUR 15.7 million (21.3). Reserves for future customer bonuses were EUR 13.7 million (18.3) at the year end. The interest rate used for discounting technical reserves relating to endowment and capital redemption policies was decreased to 2.5 per cent from 3.5 per cent. The measure increased technical reserves by EUR 25.5 million. In addition the guaranteed rate for individual and group pension reserves carrying a guaranteed rate of 3.5 or 4.5 per cent was lowered to 3 per cent for the year 2006, which increased technical reserves by EUR 19 million.

 

The total gross premium income of Sampo Group's life insurance companies grew by 27 per cent to EUR 668 million (526). Direct premiums on own account grew by 30 per cent to EUR 649 million (500). Single premium contracts transferring pension fund liabilities to Sampo Life accounted for EUR 101 million of the premium growth. Premiums received from reinsurance were EUR 13 million negative, due to the sale of part of the reinsurance portfolio. Premiums from the Baltic companies grew by 75 per cent to EUR 21 million (12). The Swedish subsidiary, If Livförsäkring AB, was launched in May 2005 and received EUR 0.8 million in premiums. Regular premiums grew to EUR 370 million (302) and their share of total premiums was 55 per cent (57). 

 

Sampo Life's overall market share in Finland rose to 19.5 per cent (17.9). The company is by far the biggest player in the corporate segment with a market share of 39.4 per cent (29.5). Market shares increased also in all the Baltic countries, particularly in unit-linked insurance. Sampo Life Group is the third biggest unit-linked provider in the region.

 

Sampo Life failed to achieve its targets in the sale of unit-linked policies and the premiums amounted to EUR 272 million (273). This is due to a drop in the single-premium endowment policies, whereas new sales of, and premiums from, unit-linked pension policies developed favourably. The sale of individual pension policies grew by 40 per cent to almost 12,000 policies, nearly all of which were unit-linked contracts. Sampo Life's market share in the Finnish unit-linked insurance decreased to 20.8 per cent (25.5).

 

Other

 

The operations of Sampo plc (the holding company) and Primasoft are reported in this segment. Sampo plc's main function is to own and control the subsidiaries engaged in insurance, banking and investment services. Primasoft provides IT services for various companies in Sampo Group.

 

 

The segment's loss before taxes amounted to EUR 49 million (106). The comparison figure contains EUR 95 million in sales gains from the sale of Skandia shares held by Sampo plc and Sampo plc's share of If's profits (EUR 40 million) in the first quarter of 2004, when If was treated as an associated company.

 

Sampo plc's balance sheet total was EUR 3.6 billion. Of this amount, holdings in banking and investment services companies accounted for EUR 0.8 billion and holdings in insurance companies for EUR 2.4 billion. Investments in real estate decreased from EUR 105 million to EUR 31 million, because of disposals. In addition to short-term operational financing, liabilities include two debt instruments - a subordinated note and a senior note with face values of EUR 600 million and EUR 300 million respectively. At current market rates Sampo plc is liable for interest payments on the above instruments of approximately EUR 10 million per quarter. 

 

Primasoft has a negligible impact on the profit or loss of the Other segment.

Outlook for 2006

 

At the start of 2006 the outlook for the world economy remains fairly positive. Relatively strong growth is already largely discounted in the equity prices, which have continued their upward momentum through the last three years. There is, however, uncertainty as to how long the new growth engines of the world economy, like China and India, can maintain the steady progress.

 

Although macroeconomic developments may lead to more modest investment returns than in 2005, Sampo Group's profitability is expected to remain good in 2006, as all of its business areas are operationally in excellent shape.

 

Sampo Bank Group's operating profitability - profit excluding extraordinary gains and losses - is estimated to improve during 2006. Lending volume will continue its healthy growth which, combined with some relief in margin pressure and the rise in interest rates, will result in an improvement in net interest income. Furthermore, fee and commission growth is expected to continue and credit quality to remain firm. Although particular attention will be paid to cost efficiency, it is increasingly 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 be paid on the company's 564,700,515 shares. The number of shares includes 382,200 shares converted in 2005 with warrants, which were approved by the Board on 20 January 2006. Dividends are not paid on the 7,000,000 Sampo A shares that Sampo plc held at 31 December 2005. The total amount of dividends would be EUR 338,820,309.00.

 

SAMPO PLC

Board of Directors

 

 

For more information, please contact:

Peter Johansson, CFO, tel. +358 10 516 0010

Jarmo Salonen, Head of Investor Relations, tel. +358 10 516 0030

Hannu Vuola, Head of Group Communications, tel. +358 10 516 0040

 

Sampo will arrange a Finnish language press conference on the 2005 results at Unioninkatu 22, Helsinki, today at 1.30 p.m. Finnish time. An English-language telephone conference for investors and analysts will be held at 2.30 p.m. Please call +44 (0) 207 162 0025 (UK/European) or +1 334 323 6201 (North American). Password: SAMPO.

 

The conference can also be followed from a direct transmission on the Internet at www.sampo.com/ir

A recorded version will later be available at the same address.

 

Sampo plc, Sampo Bank plc, If P&C Insurance Holding Ltd and Sampo Life Ltd will publish their annual reports for 2005 in week 12.

 

The announcement of the results of Sampo Bank plc (English and Finnish) and the Housing Loan Bank of Finland plc (English and Finnish) can be viewed on the Internet at www.sampo.com.

 

Sampo will publish the first quarter 2006 interim report on 11 May 2006.

 

DISTRIBUTION:

The Helsinki Stock Exchange

The principal media

Financial Supervisory Authority

 

 

 

¹) Group solvency 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.                    

                       

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.                         

                       

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.                    

                       

The key figures for Banking and Investment Services and the holding company have been calculated according to standard 3.1 of the Financial Supervision. The key figures for the insurance business have been calculated according to the decree of the Ministry of Finance and the specifying instruction 5/002/2005 of the Insurance Supervisory Authority.  

 

 

 

 

 

                 

 

 

 

 

 

CONSOLIDATED INCOME STATEMENT BY SEGMENT FOR YEAR ENDED 31 DECEMBER 2005

 

 

 

 

 

 

 

 

 

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 1,575 (1,099), loans and advances due to central banks and repayable on demand EURm 112 (88) and other short-term bank deposits EURm 292 (270).           

 

 

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 Jan. 2004. The comparative 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).            

 

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 Skandia 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.        

 

 

Acquisition of Sampo Banka (A/S Maras Banka) in the year 2004          

           

On the 17 November 2004 Sampo Bank plc acquired Sampo Banka (AS Maras 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.        

 

 

 

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 service segment and those of Sampo T.U. Zycie S.A. in the life insurance segment.           

           

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 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 2005 Sampo plc sold Mandatum Private Equity Funds Ltd to Amanda Capital Ltd.