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Sampo Group Analyst Day - Invitation
Tuesday, August 25th, 2009
Sundmans, Eteläranta 16, 00130 Helsinki
Programme of the Day
13.00 – 13.45 Buffet lunch 13.45 – 14.00 Welcome Group CEO and President Kari Stadigh 14.00 – 14.30 Value creation through IT
Kjell-Rune Tveita, Chief Information Officer, If P&C
14.30 – 15.00 Internet in If P&C Line Hestvik, Head of BA Private, If P&C
15.00 – 15.30 Coffee 15.30 – 16.00 If’s reinsurance strategy Knut-Arne Alsaker, Head of Reinsurance, If P&C 16.00 – How Sampo manages risks Markku Pehkonen, Chief Risk Officer, Sampo Group 17.00 - Boat leaves for Repossaari
Please register
with Ms. Taina Vesalainen, [email protected], tel. +358 10 516 0033
by Tuesday, 18 August 2009.
Welcome!
Value of IT
Kjell Rune TveitaCIO If P&C Insurance
2
Agenda
Introduction to If’s IT organization
Key ongoing projects
Future priorities
3
Our people
4
Nordic organization with strong connection to business operations
CIOKjell Rune Tveita
IT SERVICES
CORPORATE SYSTEMS
DATA WAREHOUSE
IT CONTROLLING & SECURITY
Process & TechnologyPRIVATE
Process & Technology
COMMERCIAL
Process & Technology
INDUSTRIAL
Process & Technology
BALT. & RUS
If BUSINESS AREAS
Organizational priorities
— Delivery of excellence
— Stability
— Cost efficiency
— Innovation
— Business relationships
Balance between centralized setup and close integration with business operations
5
Cornerstones in governance model
— If’s project management model
— ITIL common language
— Common system development and maintenance standard
6
Continuous improvements in service and efficiency
Efficient operations
* Cost including IT operational costs within BA industrial, commercial and private** Gartner, IT key metrics data 2009
Operational cost developmentMillion SEK*
- 11%
Relative performanceIT spend as % of revenue**, 2008
If
Banking & finance
4,3%
6,9%
Extensive development efforts
Development costsIf group, Million SEK
— Realization of common Nordic insurance system
— Implemented in BA Industrial
— Ongoing implementation in BA Commercial
— Launch of If Login
— Implementation of Nordic payment system
— Ongoing roll-out of Nordic internet platform
— Ongoing implementation of Automated Claims
2004 2008
720 640
190 220320 370
420
2004 2005 2006 2007 2008
7
Agenda
Introduction to If’s IT operations
Key ongoing projects
Next steps
8
IT an integrated component in If’s strategy
Customer focus
Operational excellence
Selective growth
Internet site makeover
Waypoint
Automated claims
Russia & Baltic integration
Key ongoing IT projects
9
Key ongoing internet projects
External website makeover Development of Nordic sale functionality
10
New product system platform being introduced within BA Commercial
Scope
Implementation plan
Preliminary
20072008
2009
2010
2011
Sweden
Completed
Norway
Ongoing
Denmark
Finland
2012
Nordic insurance system for commercial customers
Handling of policies, claims and customer information
Project description
Benefits
Improved process efficiency and quality
Better tariffs and intelligent pricing
Reduced IT costs
New products, and time to market
11
Improvements in customer service and efficiency through Automated Claims
6700
4300
2009Jan-May
2008
Number of registrations
69%
50%
Automation level (processed inquires)
4000
2009Jan-May
2008
69%
61%
10 500
12
Ongoing projects in Baltic countries and Russia
Baltic countries
Russia
Implementation of Nordic systems and agreements in newly acquired SOAO Region
Launch of system for tariff corporate products
Investigation of potential claims handling via partners
Integration of SOAO Region and “If insurance Russia” IT platforms
Launch of Letakpasam.lv and Drauskpats.lt
Implementation of one Baltic system for private and corporate
13
Agenda
Introduction to If’s IT organization
Key ongoing projects
Future priorities
14
Future priorities
Implementation of Nordic customer contact center
Continued automation efforts
Internet initiatives with focus on service concepts
Next wave in off shoring/outsourcing
Keep cost advantage
Internet
Sampo Analyst DayAugust 25, 2009
2
We aim at creating value through Internet within sales, service and claims
www.if.se/fi/no/dk
Claims
Service
Sales
We handle about 1 000 000 claims per year
We have about 3 000 000 customers
Under development, with first release projected for Finland
Launched in Finland, Sweden and Denmark with Norway being next in line
Internet registration launched in all countries. Further work process improvements planned.
3
4
Marketing messages
On-line Support
Shopping basket
The sales process
5
The claims process
6
Internet sales has increased, although starting from a low level
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
2003 2004 2005 2006 2007 2008 2009F
Automated sales on the Internet, no. of objects Finland
Sweden
Norway
7
Internet sales was launched in Denmark in June 2009
Motor
Property
Person
Automated sales on the Internet in Denmark, no of objects
0
50
100
150
200
250
300
350
400
Jan Feb Mar Apr May Jun Jul
8
The share of claims reported online is continuously growing
47%
70%
61%
13%
20%
12%9%
24%
44%
29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Sw eden Norw ay Denmark Finland Total
Growth rate in and share of claims reported on Internet per country, 12 months rolling
Growth rate, 12 months rolling per June 2009 compared to June 2008
Share, 12 months rolling per June 2009
9
Given differing market dynamics, we follow country-by-country strategic directions for Internet
Based on market dynamics, we don't actively push Internet in Norway.
Given our challenger position in the Danish market, there is a potential for growth.
In Finland, we actively “push”our Internet solution.
In Sweden, we actively “push” our Internet solution.
We actively market our Internet solution in the Nordic market. Yearly marketing spend of 50 MSEK.
10
In addition to our website and standard offers, we work through partnerships with online classifieds to target the used car market
Used car warranty and Try-On offer for car insurance
Used car warranty and Try-On offer for car insurance
Car insurance offer with exact quote to logged-in members
Discounted car insurance offer
Sales so far: 60 000 objects
Sales so far: 3 000 objectsLaunch September 1st Sales so far: 200 objects
Reinsurance Strategy
Knut Arne AlsakerHead of Reinsurance
2
Main reasons for If to buy reinsurance
– Utilize the capital base efficiently
– Reduce cost of capital
– Limit large fluctuations in underwriting results
– Increase underwriting capacity
– Get access to reinsurers’ competence base
3
Reinsurance is a key risk and capital management tool
Before reinsurance
ERM/Corp. Finance Perspective
Traditional
Strategicand
tactical
After reinsurance
Operational
Credit
Market
Insurance
Liability side adjustment
Subordinated debt
Equity
Operational
Credit
Market
Insurance
Equity
Subordinated debt
ReinsuranceLiability side adjustment
OperationalCredit
Market
Insurance
Equity
Liability side adjustment
Economic Capital
Reinsurance
Subordinated debt
Diversification
4
View of reinsurance from a risk perspective
Probability of event/risk
Fina
ncia
l effe
ct o
f eve
nt/ri
sk
Handled without reinsurance
Stabilizing reinsurance
Basic reinsurance
Noreins.
Illustrative
5
200Retention200 MSEK
200
5 000
Retention200 MSEK
100
Property Per Risk1.4.2009 - 31.3.2010
Per Event1.1.2009 – 31.12.2009
Casualty1.6.2009 - 30.5.2010
Retention 100 MSEK
Fac. XL
500
Fac. XL
Portfolio without US manuf. risksprotected by thistreaty Section
Portfolio withUS manuf. risks protected by thistreaty Section
Q 2 / 2009
QRISQuarterly Reinsurance Solution
150 MSEK xs 50 MSEKxs QAD
Retention50 MSEK
200
50
QRIS & ARISCorporate Multi-lineProtection
1.4.2009 - 31.3.2010
ARISAnnual Reinsurance Solution protecting accumulated QAD
150 MSEK xs 50 MSEKxs AD 500 MSEK
2 000
Q 3 / 2009
Q 4 / 2009
Q 1 / 2010
If’s largest reinsurance treaties currently in force
6
If’s total reinsurance program consist of three elements
Facultativereinsurance
Core treaties-
Excess of loss
QRISPrimarily focused on profit volatility and stabilizing effects on the P&L
Reduce risk exposure and net effect of multiple medium-sized claims
Structured to reduce fluctuations both in quarterly and annual results
Large (peak/unusual) individual risks
Provide capacity above what is provided by core treaty programs
Provide risk capacity above If’s risk tolerance and protect balance sheet
Capture risk related to large event (typical nat cat) and single large risk exposures
Designed to significantly reduce tail risk, typically use of non-proportional reinsurance
Structured in terms of capacity and retention based on cost of reinsurance vs. cost of capital and generally If's risk tolerance at a consolidated level
7
0,7 0,8 0,9 1 1,1 1,2 1,3 1,4
Gross Net
0
1
2
3
4
5
6
7
0,3 0,5 0,7 0,9 1,1 1,3 1,5 1,7
Total Denmark
Sweden Norway
Finland
Use of non-proportional reinsurance to reduce risk for a well-diversified P&C insurer
Private
Commercial
Industrial
Russia &Baltics
NorwaySwedenFinlandDenmarkLithuaniaLatviaEstoniaRussia
Motor TPL
Motor Other
Property
PersonalAccidentLiability
WorkerscompensationCargo
Seg
men
tsG
eogr
aphy
Pro
duct
s
– Substantial diversification effects
– But risk profile affected by large exposures and cat risk
– Reinsurance strategy adapted to business model to support key financial targets
– Excess-of-loss reinsurance very effective for reducing tail risk
– Significant reduction in capital need
1,1 1,2 1,3
8
1 in 4 1 in 4
1 in 20 1 in 20
1 in 100
1 in 100
1 in 200
1 in 200
Gross Net
Gross Net1 in 100 -4 075 -8821 in 200 -5 462 -1 120
XL reinsurance reduces the capital need significantly
Source: Guy Carpenter & If’s internal Risk Management
Cost of capital decreased by 759 MSEK at 200 years level and 17.5% RoE
Effect of cat XL-program
Cost of reinsurance
Cost of capital
Economic value
vs.
9
A group-wide catastrophe program has proven valuable towards Nordic storms
0
100
200
300
400
500
600
700
800
900
Gross Net Net, localretention 100
Net, localretention 50
BalticsFinlandDenmarkNorwaySweden
Losses, gross and net given If's
reinsurance structure
Assessment if local programs with retention 100/
50MSEK
Figures similar to the Nordic storm "Gudrun" (2005)
Figures represent gross/net losses, excluding reinstatement premiums
10
Summary of the iterative process to structure the total reinsurance program
Assess Business
Area’s capacity needs
Access reinsurance market, negotiate
pricing, secure quality reinsurance panel
Optimize retention levels
from a risk/return perspective (given RoE
target)
Evaluate effect of
reinsurance structures on profit volatility
Secure compliance
requirements (internal & external)
Assess needed reinsurance
capacity given risk tolerance
11
70,0
75,0
80,0
85,0
90,0
95,0
100,0
2005 2006 2007 2008 2009 2009-6
AAA
AA+
AA
AA-
A+
A
A-
If’s reinsurance panel S&P rating development according to Aon’s Rating Index Weighted by EPI
If’s reinsurance security policy requirements:
Short-tailed lines: A
Long-tailed lines: AA
12
Governance of reinsurance in If
Risk Management
Business Areas
Group Reinsurance
Market perspectivePricing / negotiation & placement
Security ManagementAdministration
Capacity requirementsFinancial plan
Business opportunities
Capital requirementsCost of capital
Analyses & optimization
Board of Directors
Risk control Committee(CEO, Deputy CEO, CLO, CFO, CRO, Chief Actuary)
Reinsurance Committee(Head of Reins., Heads of UW, CRO, Chief Actuary)
Risk Management in Sampo Group
From Risk Measurement to Risk Management
August 25th, 2009 2
Risk is our Business
• For financial sector companies in general, the core competences in business are – skilful pricing of risks,– proper management of risk-exposures arising
• High quality Risk Management Process is prerequisite of business
• How Sampo views Risk Management ?
August 25th, 2009 3
Risk Management is a Process GOVERNANCE
• Risk Governance; – Authorisations and responsibilities of centralized units and administrative bodies are
clearly defined and delegated
• Clear division of business responsibilities:– Strategies of different companies and business areas are clearly set,=> Concentration risks managed centrally
ANALYSIS
• Identification and measurement of Risks:– The risks involved in business operations and business environment are analysed and
measured continuously– Especially when launching new products risks are thoroughly analysed.
• Determining Risk Buffers required – Difference between actual capitalisation and internally assessed Capital requirement
(“Economic Capital”) is monitored regularly
August 25th, 2009 4
Risk Management is a Process ACTIONS
• Pricing of Risks: – Sound pricing of customer transactions taking into account (i) allocated capital and its
return target, and (ii) operating costs– Balance between Return and Risk in investments
• Managing Risk Exposures & Capitalisation:– Investments, liabilities and capitalisation, are constantly adjusted to maintain a sound risk-
return ratio and return on capital (ROC)– Portfolio management’s responsibilities are based on defined limits and respective
authorisations– In strategic divestments/investments risk-return plays a significant role
CONTROL
• Internal Audit– Internal and external rules followed
• Measuring and reporting of Risks:– Results, risks and profitability are measured and reported by units, which are independent
from business activities
August 25th, 2009 5
Different Angles to RMPMeasurement & Control
• Focus on Measurement, strong confidence in results • ”Too” independent Risk Management Unit does not understand business well enough, • RMU concentrates on controlling businesses and their risks • Capitalization is a major risk management tool
Management & Actions
• Focus on understanding the earnings logics. Measurement is seen as a tool helping to understand earnings logic even better,
• Risk management unit is independent, but in as close co-operation with businesses as possible• RMU controls risks, but at the same time consults management and business units in risk
issues • Capitalization is important, but adjusting risks pro-actively is even more important
The active management of risks based on good understanding of expected returns and risks is the key
Sampo prefers Management over Measurement
August 25th, 2009 6
RMP and Investment Management• Company specific needs form the basis for all investments
– Liabilities intensively analysed and modelled– Regulatory requirements
• Strategy– Absolute Return targets taking into account the liabilities and general business targets– No diversification for the sake of diversification
• Centrally managed activities– Investment strategies coordinated and streamlined, no overlapping activities– Sampo plc’s Chief Investment Officer responsible for all investments, all portfolio
managers have a direct reporting line to him– Common infrastructure for investment administration and reporting
August 25th, 2009 7
RMP and Capital ManagementRisk Capital Available > Risk Capital needed
– Risk Capital Available = SI Capital + other items absorbing economic losses– Risk Capital Need = Measured Economic Capital + ”Non-measurable” risks– The buffer between above measures under constant considerations and
risks/capitalization are changed pro-actively
Economic Capital (EC) at 99.5% confidence level as a basis for Risk Capital Need– Economic capital is an estimate of Risk Capital required to keep the Group solvent within
1 year time frame with given volatilities and correlations– EC is calculated at 99.5% confidence level and 1 year risk horizon– ”Non-measurable” risks - considered by management- are for instance liquidity, market
illiquidity and risks related to business environment
Adjusted Solvency Capital is our measure of Risk Capital Available– Solvency I capital items included as such– The difference between undiscounted technical provisions and their discounted value plus
optionalities (Liability side adjustment)– Capital instruments excluded from regulatory capital in Solvency I
August 25th, 2009 8
Sampo Group EC, 30 June 2009According to Solvency II (Nordea 18.19% consolidated)
1,062
3,827
5,452
397
379350
2,480
682
379118
0
1,500
3,000
4,500
6,000
7,500
P&C Life Holding Diversif. GroupEconomic
Capital
Adj. GroupSolv. Capital
Liability side adjustments,If and Mandatum Life
EURm
ExcesscapitalEUR 2.9 bn
Equalisation reserves
6,678If subordinated loan
August 25th, 2009 9
Sampo Group and OP-Pohjola GroupSolvency 30.6.2009
Sampo Group OP-PohjolaEURm Consolidation Method *) Group
Group Capital 6 090,1 5 682Sectoral items 872,8 1 683Intangibles and other deductibles -1 511,0 - 2 179
Goodwill -1 033,5 - 1 100Equalisation reserve -382,7 -500Other -94,9 -579
Solvency capital, total 5 451,8 5 186Minimum requirement for solvency 3 297,7 3 580Group solvency 2 154,1 1 606Group solvency ratio,% 165,3% 145%
*) Nordea 18.19% consolidated
August 25th, 2009 10
Monitoring Risks and Capitalisation at Group Level
-100
-50
0
50
100
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Risksover time
Capital components• Capital items• Profitability
Risk exposures by asset & liability classes
Risks by exposures• Known rules vs. scenarios
Total Risk as EC• Known rules vs. scenarios
• Earnings risks vs. Consequential risks
Risk Buffersover time
• Risks vs. Buffers• CRO´s analysis• Internal Audit's comments• S&P/Moody's Opinions• Regulators view
MajorManagement Actions
• Investment profiles• Liability profiles• Capital decisions
Independent Analysis
Audit Committee is able to make recommendations
0
20
40
60
80
100
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
East
Risk Management in Sampo Group
From Risk Measurement to Risk Management