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Asset Allocations and Investment Returns

The total amount of Sampo Group’s investment assets as at 31 December 2013 was EUR 17,878 million (EUR 18,164 million in 2012).The compositions of the investment portfolios by asset classes in If P&C, Mandatum Life and Sampo plc at year end 2013 and at year end 2012 are shown in the figure Development of Investment Portfolios, If P&C, Mandatum Life and Sampo plc, 31 December 2013 and 31 December 2012.

Development of Investment Portfolios
If P&C, Mandatum Life and Sampo plc, 31 December 2013 and 31 December 2012

 

Sampo plc has a liquidity portfolio consisting mainly of money market instruments and a long-term portfolio including subordinated debt instruments issued by the insurance subsidiaries and the associated companies. The investments of Mandatum Life’s Baltic subsidiary are included in Mandatum Life’s investment assets as equity in all tables and graphs in this Risk Management section.

The insurance liabilities as well as the risk appetite of Mandatum Life and If P&C differ and as a result, the structures and risks of investment portfolios of the two companies often are different. This is reflected also in the companies’ investment returns. Mandatum Life has had on average higher returns and higher volatility. The figure Annual Investment Returns at Fair Values, If P&C and Mandatum Life, 20042013 presents the historical development of investment returns. 

Annual Investment Returns at Fair Values
If P&C, 2004-2013
%
Annual Investment Returns at Fair Values
Mandatum Life, 2004-2013
%

The weighted average investment return of the Group’s investment portfolios (including Sampo plc) in 2013 was 7.8 per cent (7.3 per cent in 2012).

More detailed investment allocations and average maturities of fixed income investments of If P&C, Mandatum Life, Sampo plc and Sampo Group as of year-end 2013 are presented in the table Investment Allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2013.

Investment Allocation
If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2013
If P&C Mandatum Life Sampo plc Sampo Group
Asset Class Market value, EURm Weight Average maturity (years) Market value, EURm Weight Average maturity (years) Market value, EURm Weight Average maturity (years) Market value, EURm Weight Average maturity (years)
FIXED INCOME TOTAL 10,272 88% 2.2 3,228 59% 2.2 677 89% 0.4 14,177 79% 2.1
Money market securities and cash 873 7% 0.2 551 10% 0.4 637 84% 0.2 2,060 12% 0.3
Government bonds 1,855 16% 2.9 727 13% 2.2 0 0% 0.0 2,582 14% 2.7
Credit bonds, funds and loans 7,544 65% 2.2 1,933 35% 2.7 39 5% 0.0 9,516 53% 2.3
Covered bonds 3,237 28% 1.9 125 2% 2.2 0 0% 0.0 3,362 19% 1.9
Investment grade bonds and loans 2,399 21% 2.0 650 12% 1.5 0 0% 0.0 3,050 17% 1.9
High-yield bonds and loans 1,643 14% 3.2 949 17% 3.1 11 1% 2.7 2,603 15% 3.2
Subordinated / Tier 2 188 2% 2.2 54 1% 3.0 29 4% 3.7 271 2% 2.5
Subordinated / Tier 1 77 1% 1.0 155 3% 5.0 0 0% 0.0 233 1% 3.6
Hedging swaps -1 0% - -1 0% - 0 0% - -2 0% -
Policy loans 0 0% 0.0 18 0% 1.3 0 0% 0.0 18 0% 1.3
EQUITY TOTAL 1,283 11% - 1,448 27% - 18 2% - 2,749 15% -
Finland 1 0% - 647 12% - 18 2% - 665 4% -
Scandinavia 948 8% - 0 0% - 0 0% - 948 5% -
Global 335 3% - 801 15% - 0 0% - 1,136 6% -
OTHER ASSET CLASSES TOTAL 113 1% - 761 14% - 13 2% - 887 5% -
Real estate 92 1% - 194 4% - 2 0% - 288 2% -
Private equity 21 0% - 221 4% - 11 1% - 253 1% -
Commodities 0 0% - 0 0% - 0 0% - 0 0% -
Alternative 0 0% - 345 6% - 0 0% - 345 2% -
TRADING DERIVATIVES -3 0% - 16 0% - 53 7% 0.0 66 0% -
ASSET CLASSES TOTAL 11,666 100% - 5,452 100% - 760 100% - 17,878 100% -
FX Exposure, gross position 80 - - 539 - - 148 - - 767 - -

Parent company Sampo plc’s asset portfolio is a liquidity reserve including mainly short-term money market instruments and hence its market risks are limited. Interest rate risk arising from gross debt and the liquidity reserve is Sampo plc’s most significant market risk together with refinancing risk related to gross debt. Most of the parent company’s debt is tied to short-term reference rates as a consequence of interest rate swaps used. This mitigates group level interest rate risk because, while lower interest rates would reduce subsidiaries’ investment returns in the long-term, the interest expense in the parent company would also be lower.

Fixed income investments and listed equity instruments form major part of the subsidiaries’ investment portfolios. Money market securities, cash and investment grade government bonds form a liquidity buffer within fixed income investments. The average maturity of fixed income investments was 2.2 years in If P&C and 2.2 years in Mandatum Life. In both companies the average maturity is longer than duration (Interest Rate and Currency Risks section) because the fixed income investments include floating rate notes. 

Both If P&C and Mandatum Life are exposed mainly to interest rate and currency risks (general market risks) as well as to equity and spread risks.

Additionally, If P&C and Mandatum Life have real estate investments, unlisted equity instruments (mainly private equity funds) and alternative investments. The Investment Policies set limits for maximum allocations into these asset classes and products. On 31 December 2013, the combined share of the above mentioned investments was 5.0 per cent of the total investment portfolio of Sampo Group. In If P&C the proportion was 1.0 per cent and in Mandatum Life it was 13.9 per cent.These asset classes are managed in most cases by external asset managers with the exception of the Group’s real estate portfolio that is managed by Sampo Group’s real estate management unit. The real estate portfolio includes both direct investments in properties and indirect investments in real estate funds as well as in shares and debt instruments in real estate companies. 

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