Solvency II and Mandatum Life Sampo Group, Capital Markets Day
11 September 2015
Solvency II in a Nutshell • New EU-level solvency framework In force 1 January 2016
• Risks are measured in a market consistent way and set Solvency Capital Requirements (SCR) are based on
99.5% confidence level (1 year horizon)
• Own Funds (Available Capital) is based on Solvency II balance sheet • Solvency II Liability = Best Estimate Liabilities (BEL) + Risk Margin (RM) • Discounted by Solvency II curve i.e. swap curve adjusted with credit risk and volatility adjustments and
ultimate forward rate • Transitional measure on technical provisions: Book value of liabilities can be used instead of S2 Liability
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Solvency II discount rate (30 June 2015)
EUR SWAP Solvency II-curve
Solvency II Own Funds (30 June 2015) • Moving from IFRS Balance Sheet to SII Balance Sheet increases solvency capital
• Unit Linked S2 Liability lower than book value Increases Own Funds after tax by EUR 380 million • Within with-profit liabilities Risk Policies create OF and policies with high guarantees reduce OF • Transitional measure on technical provisions applied to pension policies with 3.5% and 4.5% guarantees
12,642
344 634 497
5,083 4,614 5,304
5,774 5,299
5,299
100 1,341
2,095 1,542
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
Assets liabilities SII liabilities (incl.transitionals)
SII liabilities (excl.transitionals)
IFRS balance sheet SII liabilities
Assets Other With-profit Unit Linked Sub. Ord. Loan SH Equity/own funds
EURm
Transitional Measures on Technical Provisions • Transitional measures are applied to
• Pension policies with 3.5% and 4.5% (excl. segregated group pension portfolio) • Book value of liabilities EUR 3,225 million (incl. discount rate reserves) • Solvency II Liability is EUR 3,915 million i.e. liability without transitional measures
Solvency II Liability
Liability without
transitional measures
EUR 3,915 million
1 January 2016*
Liability with
transitional measures
EUR 3,225 million
Deduction fixed per
1 Jan 2016 690 m
(estimate per 6/2015)
Deduction decreases to zero over 16-year transitional period.
31 December 2031
*) as of 6/2015. Solvency II liability varies in line with interest rates deduction varies until it will be fixed per 1 January 2016.
Solvency II Capital Requirement (SCR) and Own funds, 30 June 2015
Without transitional measures
LAC = Loss Absorbing Capacity TP = Technical Provision DT = Deferred Taxes
With transitional measures Equity risk transitionals decrease market risk and SCR, while transitional measures on technical provisions increase own funds
Equity transitional 7 years
Technical provisions transitional 16 years
EURm
EU
Rm
0
500
1000
1500
2000
2500
Own Funds SCR Own Funds SCR Own Funds SCR Own Funds SCR Own Funds SCR Own Funds SCR
30.6.2015 Interest Rates - 25 bp Interest Rates + 25 bp Equity -10 % Credit Spread + 50 % Equity weight - 10 %-point --> FI
Estimated Sensitivities after 1 January 2016*
*) Based on 6/2015 figures. Interest rate movements before 1 January 2016, when the effect of liability transitional is fixed, will have a smaller effect on the solvency position. **) Equity stress improves the Coverage Ratio, because the change in risk charge (symmetric adjustment decreases from +3.3% to -2.4%) mitigates equity stress’ negative impact. Anyway equity stress decreases excess capital.
155% 160% 152% 175%
EURm
151% 158% **
Trend of Liabilities and Own Funds Mi
llion
EUR
• Liabilities with highest guarantees (4.5% and 3.5%) consume Own Funds without transitional rules.
• Unit Linked portfolio creates Own Funds.
• Liabilities with highest guarantees decrease substantially during transition period (2016-2032) and Unit Linked liabilities are expected to increase.
Positive trend for Own Funds.
Trend of Liabilities and SCR • Market Risk is the main driver behind SCR.
• Most of the market risk arises from assets backing with-profit liabilities.
Decreasing trend of with-profit liabilities decreases SCR.
Expected positive trend in Coverage ratio based on Own funds and SCR expectations.
0
200
400
600
800
1,000
1,200
1,400
1,600
SCR Forecast*
EURm
*) Current asset allocation + expected liability trends.
Appendices
Mandatum Life Will Apply…
YES/NO Comments
Standard Formula YES SCR is measured by using standard formula i.e. not by internal model.
Volatility Adjustment YES Discount rate (0-20 years) is increased by volatility adjustment. EIOPA sets level quarterly (xx bp per 6/2015)
Transitional Measure on Technical Provision
YES Applied to pension policies with 3.5% or 4.5% guarantees. Book value of liabilities used instead of SII liabilities increases own funds by EUR 550 million (6/2015). Transitional period 16 years.
Transitional Measure on risk-free interest rates
NO Can not be used together with Transitional measure on technical provisions
Equity Risk Transitional YES Capital Charge 22% instead of 39% (1 January 2016) for listed EEA and OECD based equities. Transitional period 7 years.
Matching Adjustment NO Not possible in Mandatum Life
SCR Market Risk Modules Equity risk Equity Risk SCR EEA/OECD
based (Type I)non-EEA/OECD based (Type II)
Basic stress 39 % 49 %Symmetric Adjustment +/- 10 %-point +/- 10 %-pointcapital requirement 29-49 % 39-59%
Roughly: Symmetric Adjustment decreases basic capital charge, if equity indexes below 3 year average and vice versa. Equity shock decreases symmetric adjustment decreases risk charge helps solvency position after shock.
Spread risk
Alternative investments (Private EQ, Commodity) are classified as Type II equity i.e. 39-59% capital charge
Real Estate: 25% capital charge
Interest Rate Risk • Calculated from both FI assets and with-profit technical provisions
Interest rate risk stress: yield curve up or down, which ever decrease more Own Funds
duration 1 2 3 4 5 6 7 8 9 10-20 yr
Interest rate stress, down -75% -65% -56% -50% -46% -42% -39% -36% -33% ≈ -30%
Interest rate stress, up 70% 70% 64% 59% 55% 52% 49% 47% 44% 42%→26%
Duration AAA AA A BBB BB B CCC or lower Unrated
1 0.9% 1.1% 1.4% 2.5% 4.5% 7.5% 7.5% 3.0%
3 2.7% 3.3% 4.2% 7.5% 13.5% 22.5% 22.5% 9.0%
5 4.5% 5.5% 7.0% 12.5% 22.5% 37.5% 37.5% 15.0%
10 7.0% 8.5% 10.5% 20.0% 35.0% 58.5% 58.5% 23.0%
Equity risk 923 EURm
66 %
Interest rate risk
164 EURm 12 %
Spread risk 226 EURm
16 %
Property risk 42 EURm
3 %
Concentration risk
1 EURm 0,1 %
Currency risk 50 EURm
4 %
Fixed Income3970 EURm
59 %
Listed Equity1750 EURm
26 %
Private Equity / Alternative693 EURm
10 %
Real Estate297 EURm
4 %
Mandatum Life - Solvency II SCR (Market Risk)*
Market Risk SCR (diversified) EUR 1,406 million
30 June 2015
Asset Allocation EUR 6,710 million
30 June 2015
*) Excl. Unit Linked Market Risk
Transitional Measure for Standard Equity Risk • For type 1 equities (equities listed in regulated markets in the EEA or OECD countries) it is possible to
apply transitional measure for standard equity risk calculation. • 22% risk charge can be used instead of 39% standard equity risk charge. This applies to type 1
equities purchased before 1 January 2016. • Risk charge increases linearly towards 39% in seven years. • Due to practical reasons Mandatum Life is planning to apply this transitional measure only for direct
type 1 equity investments.
0%5%
10%15%20%25%30%35%40%45%
2016 2017 2018 2019 2020 2021 2022 2023 2024
Type 1 risk charge without Symmetric Adjustment
Solvency II and Mandatum Life Sampo Group, Capital Markets Day
11 September 2015
IF P&C Sampo Capital Market Day
Ricard Wennerklint, Deputy CEO of If P&CLondon, 11 September 2015
DIGITALISATION
DESIGN OVERHAUL AND RESPONSIVE SITESAll policies available online
CUSTOMER CENTRIC WEBSHOPS INCREASE ONLINE SALES
WE MEET THE CUSTOMER IN THE CHANNEL OF THEIR CHOICE
NUMBER OF CONTACTSPER CHANNEL
SHARE OF VISITS TO IF.SE FROM MOBILE DEVICES
0%
5%
10%
15%
20%
25%
30%
35%
40%
Q1 2
01
1
Q2 2
01
1
Q3 2
01
1
Q4 2
01
1
Q1 2
01
2
Q2 2
01
2
Q3 2
01
2
Q4 2
01
2
Q1 2
01
3
Q2 2
01
3
Q3 2
01
3
Q4 2
01
3
Q1 2
01
4
Q2 2
01
4
Q3 2
01
4
Q4 2
01
4
Q1 2
01
5
-
2
4
6
8
10
12
14
16
2009 2010 2011 2012 2013 2014
Mill
ion
s
Inbound calls Visits to if.xx
DIGITAL CUSTOMER JOURNEY
SERVICE
CLAIMS
SALES
25% eCustomers
Customers withdigital payment and digital policy letters on all their policies
23% increase in online sales(last 6 months)
40% of claims arereported online
INTERNET IS THE FASTEST GROWING DISTRIBUTION CHANNELBA Private
NORDIC ONLINE SALES, PREMIUM ONLINE SALES BY COUNTRY 6M-15, PREMIUM
2012 2013 2014
Sweden
38%
Finland
26%
Norway
19%
Denmark
17%
Sweden
38%
Finland
22%
Norway
32%
Denmark
8%
TOTAL PREMIUM BY COUNTRY 6M-15
EFFICIENCY THROUGH ONLINE CLAIM REPORTS
29%33% 34% 35%
40%
2011 2012 2013 2014 6M 2015
62%
33%28% 27%
Finland Denmark Norway Sweden
NORDIC SHARE OF ONLINE CLAIMS ONLINE CLAIMS BY COUNTRY 6M-15
SIGNIFICANT INVESTMENT IN ONLINE SOLUTIONS
ONLINE INVESTMENTS AS % OF TOTAL IT DEVELOPMENT COST
13%11%
18%
19%
2012 2013 2014 6M 2015
13%11%
18%19%
2012 2013 2014 6M 2015
Online investments - share of IT development cost
SOLVENCY
SOLVENCY II DELIVERIES
2016
1 Jan 2016: Solvency II comes into effect
201520142011 - 2013
Preparatory SII reporting delivered according to plan
Internal model pre application processApplication
process
First ORSA
Full SII reports
Own Risk and Solvency Reports (ORSA-reports)
IF CAPITAL AND CAPITAL REQUIREMENT Q2 2015
1 9391 779
2 267
3 063
3 8003 965
3 806 3 866
0
1 000
2 000
3 000
4 000
Capital requirement
Capital
MEUR
Economic Capital and Adjusted
Solvency Capital
Partial Internal Model Solvency
Capital Requirement and
Eligible Own Funds
Standard formula Solvency
Capital Requirement and
Eligible Own Funds
Rating S&P (A-rating level)
223% 168%196% 126%
STILL UNCERTAINTY AROUND SOLVENCY II
Element Solvency Capital Requirement
Internal model regulatory approval Increased Solvency Capital Requirement through capital add on or use of standard
formula
Risk reducing effect of deferred tax MEUR 160
Element Eligible Own Funds
Norwegian natural perils fund MEUR 328
Norwegian tax on Solvency II valuation of technical provisions
Increased tax paid. Impact depends on overall tax position and tax mitigating tools
These open questions are expected to be clarified during 2015 or beginning of 2016 at the latest
IF PARTIAL INTERNAL MODEL SOLVENCY CAPITAL REQUIREMENT PER RISK Q2 2015
575
1 416220
215
607
120 1 939
160
1 779
3 965
0
1 000
2 000
3 000
4 000
MEUR
223% 224% 222%228%
218% 218%228%
213%220% 215%
0%
50%
100%
150%
200%
250%
SOLVENCY II STRESS TESTS
+10% -10% +25 bps -25 bps +50 bps -50 bps
IF RATING CAPITAL REQUIREMENT Q2 2015High liability risk charges and low diversification benefits in S&P model
1 636
1 882
3 063
2 382
3 314
3 866
257198
0
1 000
2 000
3 000
4 000
MEUR
Asset risks Liability risks
Diversification M-factor adjustment
Total A capital charge
Total BBB capital charge
Total AA capital charge
S&P capital base
IF S&P RATING – DETAILED VIEW
Assessment
Overall rating A with stable outlook
Business Risk Strong
Financial Risk Strong
Anchor a
Enterprise Risk Management and Management and Governance
a+
Group support a
THANKS FOR LISTENING
Nordea Life & Pensions and Solvency II
Snorre Storset Head of Nordea Life & Pensions
Finland & Sweden: Individual life savings and risk-related products. Nordea Bank distribution
Denmark & Norway: Corporate & individual pensions and risk-related products. NLP’s sales force, Nordea Bank & external distribution
Pension Funds: Poland, Estonia & Latvia
MAIN FOCUS AREAS
Total income EUR 291m, up 13%
Operating expenses EUR 99m, down 4%
AuM EUR 61bn, up 9%
GWP EUR 4.8bn, up 23%
90% of GWP in Market Return Products
Dividend of EUR 220m in 2014
FINANCIALS, H115 VS H114
SHARE OF NORDEA GROUP, FY 2014 5 % 8% 5 %
Total income Operating profit Equity
Largest Life & Pension provider in the Nordic countries - a business within Wealth Management
2 •
3
Cost efficiency
Capital efficiency
Product portfolio optimised
Bancassurance
Trends
Profitability (RoE) over volume (GWP)
Low yield environment
Regulatory transformation
Responding to market development
Demographics and customer behaviour
Strategic response
Delivered a turnaround – Strong starting point
4 •
GWP DEVELOPMENT, EURbn COST DEVELOPMENT, EURm
AUM DEVELOPMENT, EURbn RoE DEVELOPMENT, EURm
46 51 53 57 61
32%
42% 50% 52%
57%
0%
10%
20%
30%
40%
50%
60%
20
30
40
50
60
70
2011 2012 2013 2014 2015Q2
Total AUM MRP share of AUM
5.9 5.7 6.7
7.6 8.5
56%
72% 82% 87% 90%
0%10%20%30%40%50%60%70%80%90%100%
2 000
4 000
6 000
8 000
10 000
2011 2012 2013 2014 2015Q2
Total GWP R12m MRP share of GWP
1649 1693 1754
1517 1565 1614 1674 1498 1566
1674
12.0%
18.4%
5%
10%
15%
20%
25%
30%
400
800
1 200
1 600
2 000
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Equity YTD ROE
220 214 209 206 <200
53%
43% 43% 37%
0%
10%
20%
30%
40%
50%
60%
180
190
200
210
220
230
2011 2012 2013 2014 2015F
Total costs C/I
Low cost growth through bancassurance
Simplified product options
Automated processes
Deep integration with the Bank
Looking around the corner
5 •
3.1 3.2 4.2 5.1 6.1
2012 2014 2013 H1-15 R12
+97%
2011
BANK SOLD MARKET RETURN PROUCTS, GWP, EURbn
COMMENTS
Attractiveness of endowment products plays to our strengths
6 •
1.5 1.5 3.0 3.9 4.6
2012 2014 2013 H1-15 R12m
Tax advantages reduced on private pension savings
Tax effective savings need from increased longevity
Low yield environment
New product generation
Well-suited for bancassurance Advisory and content
+314%
2011
PREMIUM DEVELOPMENT ENDOWMENTS, GWP, EURbn
COMMENTS
-1.0 -1.5 -2.6 -1.8
-2.8
2.2 2.8 3.5 3.8 4.4
2011 2012 2013 2014 H1-15R12m
31 30 26 27 26
15 22 27 30 35
2011 2012 2013 2014 H1-15
Market Return Company also in terms of AuM
7 •
51 53 57
61
46 +136%
-15%
AuM SPLIT BY PRODUCT CATEGORY, EURbn NET INFLOW SPLIT BY PRODUCT CATEGORY, EURbn
-15%
MRP Trad
Strong growth in market return and risk profits
2012 2013 2014 H1-15 R12m
237
199 170
+62%
PRODUCT PROFITS, MARKET RETURN AND RISK, EURm
Risk MRP
8 •
275
11%9%
6% 5% 4%
25%
Nordea Peer1 Peer2 Peer3 Peer4 Peer5
Market position: Clear market leader in market return products
4% 16% -5% -3% 16% 24%
Growth in GWP vs Q1/14
Finland
Sweden
Norway
Denmark
1
1
1
3
Nordea estimates based on local insurance association statistics
LIFE & PENSIONS MRP MARKET SHARE 12 MONTHS ROLLING EST, Q1/15
9 •
2.5 2.7 3.2 4.1 4.0
Significantly improved cost efficiency
48 40 38 35 302012 2014 2013 2015
H1 2011
2012 2014 2013 2015 H1 R12
2011
COST DEVELOPMENT, EURm COST/AuM, BPS
COST/GWP, %
10 •
220 214 209 206
<200
53%
43% 43% 37%
0%
10%
20%
30%
40%
50%
60%
180
190
200
210
220
230
2011 2012 2013 2014 2015F
Total costs C/I
Solvency II considerations
11 •
Attractive new market return and risk business
Disciplined risk management of legacy traditional business – Liability Driven Investments
Cost efficiency
Further optimisation of investment strategy/hedging
Volatility adjustment in DK, NO
No use of matching adjustment
Transitional on technical provisions in NO
Equity transitionals in DK, FI, SE
Partial internal model longevity in DK
IORP* exception in SE not included
Business driven Regulatory driven
*Institutions for Occupational Retirement Provision
114 133
149
12 12
12
12 8
4 15
15 15
Q4 2015 Low Q4 2015Medium
Q4 2015High
Planned businessactionsTransitionalmeasuresVolatilityadjustmentBase incl targetlevel of sub-debt
Meet Solvency II requirements without equity capital injection
12 •
Projection of the Solvency II position to the end of 2015 under high, medium and low assumptions on the development of swap rates during 2015 • Low represents a scenario where interest rates during 2015 falls similar to 2014 • Medium represents an interest flat scenario from December 2014 onwards • High is based on internal ICAAP scenario with slight rise in interest rates Similar asset return assumptions applied across all three scenarios for equity, property and credit spread over swap rates
IR ±50 bps
EQ - 25%
+7%
-10% -11%
*Base position end Q2 2015, i.e. excluding transitional rules
EXPECTED CAPITAL POSITION ENTERING SOLVENCY II
KEY SENSITIVITIES*
Room to optimise investment strategy further
13 •
74%
22%
1% 1% 2%
Market Risks Life Underwriting RisksHealth Underwriting Risks Default RiskOperational Risk
~3/4 of SCR comes from market risks
Gives room to optimize further through re-allocation and hedging
~15% improvement by year-end possible with current plans
Reduces balance sheet volatility
CURRENT SCR COMPOSITION COMMENTS
Business model supporting future dividend capacity
Dividends paid: EUR 300m in 2013,
EUR 220m 2014
Self-financing growth in market
return and risk products
Capital release from run-off
traditional book
Balance sheet volatility management
CAPITAL REQUIREMENT VS CONTRIBUTION, EURm
COMMENTS
14 •
Trad MRPSolvency capital requirementReconciliation reserve
15 •
by
Market return company
Low cost growth through bancassurance
Competitive product offering
Leading market position
Continue to improve quality of Life
Next generation product offering fuel growth
Life business platform efficiency improve further
Solvency II optimised business model/strategy
Strong risk culture
Strong platform RoE 18% in 2018
Nordea Life & Pensions and Solvency II
Snorre Storset Head of Nordea Life & Pensions
Framework for solvency in Sampo Group Capital Markets Day, September 11th 2015 CFO Peter Johansson
1. Present framework for solvency in Sampo Group
03/09/2015
2
Present Regulatory Framework for solvency in Sampo Group, 30 June 2015
10,991
1,622 2,825
9,788
873 280
3,826
68
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Sampo plcNordeaLifeP&C
5,047
Group solvency ratio 194%
EURm
3
03/09/2015
Solvency I and Nordea with adjustment to Basel I floor
Present Internal framework for solvency in Sampo Group
1,939
1,320
3,469
853
5,876
9,788
273 313
10,373
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,00011,000
If P&C MandatumLife
Sampo plc'sshare ofNordea
Diversific. Group EC Adj. Groupsolv. capital
*) Liability side adjustments, which equal discount effect less risk margin **) Finnish equalization provisions
EURm
*) **)
4
03/09/2015
Group economic capital and solvency, 30 June 2015
2. Solvency II in Sampo Group as of 1.1.2016
03/09/2015
5
Solvency II developments
03/09/2015
6
Mandatum Life • The Finnish FSA issued its decision to approve the use of transitional
measures on August 11, 2015 If P&C Group
• If Group aims to use a Partial Internal Model (PIM) for Solvency II
Solvency II rules will replace EC models both in Mandatum Life and If P&C
Mandatum Life Solvency II Capital Requirement (SCR) and Own Funds 30.6.2015
Without transitional measures.
LAC = Loss Absorbing Capacity TP = Technical Provision DT = Deferred Taxes
With transitional measures. Equity risk transitionals decrease market risk and SCR, while transitional measures of technical provisions increase own funds
Equity transitional 7 years
Technical provisions transitional 16 years
7
03/09/2015
3,965
1,779
3,866 3,063
3,866
2,342
0500
1,0001,5002,0002,5003,0003,5004,0004,500
Solvency IIcapital
SCR Totalavailable
capital
Targetcapital
Totalavalablecapital
Targetcapital
03/09/2015
8
S&P A BBB
Solvency II
Solvency II and S&P Capital Model Q2/2015 If P&C Insurance EURm
Group capital and solvency 30 June 2015
1,779
1,350
3,826
72 7,027
9,788
273 313
10,373
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,00011,000
If P&C(PIM****)
Mandatum Life(SCR***)
Sampo plc'sshare ofNordea
Other Total capitalrequirement
AdjustedGroup
Solvencycapital
*) Liability side adjustments, which equal discount effect less risk margin **) Finnish equalization provisions ***) SCR with transition rules ****) Partial internal model SCR
EURm
*) **)
9
Solvency ratio 148%
03/09/2015
Sampo Group capital and solvency Sensitivities under Solvency II, 30 June 2015
03/09/2015
10
10,373
7,027
10,202
7,003
10,530
7,053
10,034
6,809
10,241
7,024
0
2,000
4,000
6,000
8,000
10,000
12,000
Interest Rates -25bp
Interest Rates +25bp
Equity -10%
Spread +50bp
148% 146% 149% 147% 146% Group
Solvency Ratio
EURm
3. Solvency II and Basel III
03/09/2015
11
9,788
1,780 1,780 1,780
313
1,350 1,350 1,350
273
3,826 3,342 4,742
68 68
68
0
2,000
4,000
6,000
8,000
10,000
12,000
Adjustedsolvency capital
Minimum SCR& B III floor
Minimum SCR &B III EU/Finnish,
10.5%
Minimum SCR &B III Swedish,
14.9%
Sampo plc
Nordea
Life
P&C
Solvency II and Basel III Group Solvency, Q2/2015
* **
10,373
7,024 7,940
* Equalization provisions ** Liability side adjustments
ASC / SCR & B III floor 148% ASC / SCR & B III EU/Finnish 158% ASC / SCR & Basel III 132%
12
6,540
03/09/2015
EURm
Basel IV?
EURbn REA 150 Basel I floor 75 225 Min. 8% 18 21.25% 3,826
Framework for solvency in Sampo Group Capital Markets Day, September 11th 2015 CFO Peter Johansson