Business risks

Risks related to business environment and regulation

External drivers behind changes in volumes, margins, costs and capital charges are varied, including for instance general economic development, changes in commonly shared values, developments in the institutional and physical environment and technological innovations. Because external drivers are inter-connected, customer preferences and demand can change unpredictably and there may be a need to change regulations as well. In case the company’s internal understanding of needed changes or willingness and ability to act accordingly is inadequate and competitors are more able to meet clients’ and regulation’s altered expectations, the company is highly exposed to business risk.

Due to the predominantly external nature of the drivers and development in the competitive environment, managing business risks is the responsibility of the executive level senior management. Proactive strategic decision making is the central tool in managing business risks, which relate to the competitive advantage. The maintenance of internal operational flexibility – i.e. the ability to adjust the business model and cost structure when needed – is also an efficient tool in managing business risks.

Business risks do not have the regulatory capital charge, although they may be a material source of earnings volatility. Because of this, business risks may influence the amount and structure of the actual capital base, if deemed prudent in the existing business environment.

Currently the themes of sustainable business practices in general and especially the issues related to environment, society and governance, are changing the preferences and values of different stakeholders and, as a result, competitive environment is also changing in different ways.

ESG-related risks

Sampo Group has a sustainability programme, which drives group level sustainability work. The programme consists of three strategic sustainability themes: Business management and practices, People and communities, and Climate and environment. Under each theme, the most material sustainability topics have been identified. They link to Sampo Group’s strategy, business, and risk management and are seen as important by the Group’s various stakeholders.

Business management and practices

The business management and practices theme focuses on topics that are fundamental to Sampo Group‘s operations. This includes especially good corporate governance, sustainable insurance operations and supply chain management, and responsible investment.

Good governance in Sampo Group means effective policies, management practices, and training that provide assurance that the Group complies with laws, regulations, and generally accepted principles, for example, regarding anti-corruption and bribery and anti-money laundering, and counter-terrorist financing. Furthermore, they include comprehensive information security and cybersecurity governance systems, and data privacy activities, as well as effective whistleblowing and grievance procedures.

Sustainable insurance operations are important in meeting the evolving needs of all customers and in mitigating potential adverse impacts on the Group’s reputation. Therefore, Sampo Group aims to take ESG considerations into account in product and service development, and insurance underwriting. By integrating ESG considerations into insurance operations, Sampo Group aims to prevent association with business activities that do not comply with the company’s sustainability policies, and offer products and services aligned with customers’ need and preferences. This means, for example, that Sampo Group integrates ESG considerations into insurance underwriting (e.g. expectations for corporate clients to respect international norms and standards as defined by the UN Global Compact, integration of sustainability considerations into underwriting principles and/or other relevant policies), provides loss prevention services, handles claims in a sustainable way, and develops products and services in accordance with relevant legal requirements (e.g. the EU Taxonomy).

Sampo Group emphasises sustainability factors when working with suppliers. Sampo Group is a major procurer of goods and services, especially in claims handling, and therefore has an impact on the economy, the environment, and people. Supply chains are also a crucial part of the sustainability of Sampo Group’s products and services. Sustainability issues can carry significant reputational and operational risks if not managed correctly. Therefore, Sampo Group takes ESG considerations into account in supply chain management, for example, by using supplier codes of conduct, setting additional contractual requirements for specific suppliers (e.g. based on ESG risks, sector, size, geography, business relevance), setting targets related to supply chain management, and conducting supplier risk assessments (e.g. audits, questionnaires). Sampo Group is also committed to encouraging and supporting the company’s suppliers and partners in their efforts to use more sustainable methods in their operations.

Responsible investment management and operations are important in managing investment-related risks, and in mitigating potential adverse impacts on the Group's reputation. Therefore, Sampo Group takes ESG considerations into account when assessing the security, quality, liquidity, and profitability of investments. Investment opportunities are carefully analysed before any investments are made, and ESG considerations are analysed in parallel with other factors that might affect the risk-return ratio of individual investments. Depending on the asset class, Sampo Group uses different ESG strategies to ensure the effective consideration and management of investment risks arising from ESG considerations. The strategies used include, for example, ESG integration, sector-based screening, norms-based screening, and engagement with investee companies.

People and communities

The people and communities theme includes topics relating to human rights and labour practices; diversity, equity, and inclusion; health, safety, and wellbeing; competence development; customer needs and preferences; and sustainable sales and marketing practices.

Sampo Group wants to provide customers with the best service in all situations. Here, skilled and motivated employees are an essential success factor. Losing talent or being perceived as an unattractive employer would pose large risks for the businesses. Therefore, Sampo Group strives to ensure a sound work environment, not only because it is stipulated by law but also because it lays the foundation for sustainable business performance. Diversity and inclusion are key focus areas for Sampo Group, as it is committed to providing a non-discriminatory, open, and agreeable work environment where everyone is treated fairly and equally. Risks related to these themes are managed, for example, by having strong internal policies and governance structures, conducting organisational development programmes, and offering employees training, interesting career opportunities, and attractive remuneration packages.

Additionally, a sustainable product and service offering requires being attentive to the risks relating to inappropriate customer advice and product sales, errors in claims handling and complaint processes, and a lack of clarity on conditions, prices, and fees. The focus in sales and marketing practices is on meeting the demands and needs of the customer and providing the customer with the information necessary for them to make well-informed decisions on their insurance coverage. Sampo Group manages risks related to these themes, for example, by having effective internal policies and governance structures, and offering employees training.

Climate and environment

The climate and environment theme includes topics, such as, climate change, resource use and circular economy as well as biodiversity.

Climate change and environmental issues are factors that are expected to have a mid- and long-term effect on Sampo Group’s businesses. Climate-related risks can be categorised into physical risks and transition risks.

The financial position and results of Sampo Group’s insurance operations are affected especially by physical risks. The increasing likelihood of extreme weather conditions and natural disasters is included in internal risk models. Climate-related risks are also managed effectively with reinsurance programmes and price assessments. Since climate change can increase the frequency and/or severity of physical risks, Sampo Group conducts sensitivity analyses using scenarios in which the severity of natural catastrophes is assumed to increase. Sampo Group also helps its corporate and private customers to manage climate-related risks. Extreme weather events can, for example, damage properties and lead to crop failure and business interruption. Loss prevention is an essential part of insurance services, as it helps customers to reduce economic losses and mitigates the impacts of climate change.

Sampo Group’s investments can be exposed to both physical risks and transition risks, depending on the investment in question. Investments are particularly exposed to physical risks in the form of losses incurred from extreme weather events. The transition to a low-carbon society, with potentially increasing environmental and climate regulation, more stringent emission requirements, and changes in market preferences, could in turn cause transition risks for the Group’s investments, and a possible revaluation of assets as operating models in carbon-intense sectors change. To manage physical risks and transition risks, investment opportunities are carefully analysed before any investments are made, and climate-related risks are considered along with other factors affecting the risk-return ratio of individual investments. The methods used by Sampo Group include annual analysis of the carbon footprint and climate impact of investments, sector-based screening and ESG integration, monitoring the geographical distribution of investments, and engagement with investee companies.