If P&C Insurance Annual Report 2003

Transcription

1 If P&C Insurance Annual Report 23 The leading property and casualty company in the Nordic region 3.8 million customers in the Nordic and Baltic countries 7, employees

2 Contents THE YEAR IN BRIEF PRESIDENT S STATEMENT BUSINESS MISSION, STRATEGY AND FINANCIAL TARGETS MARKET AND COMPETITORS IT BUSINESS AREAS PRIVATE COMMERCIAL INDUSTRIAL BALTIC COUNTRIES OTHER OPERATIONS MARINE & ENERGY RUN-OFF ASSET MANAGEMENT HUMAN RESOURCES SOCIAL RESPONSIBILITY AND ENVIRONMENTAL EFFORTS RISKS AND RISK MANAGEMENT FINANCIAL REPORT REPORT OF THE BOARD OF DIRECTORS THE REPORT OF THE BOARD OF DIRECTORS ALSO INCLUDES RISKS AND RISK MANAGEMENT ON PAGES FIVE-YEAR SUMMARY INCOME STATEMENT GROUP BALANCE SHEET PARENT COMPANY BALANCE SHEET CHANGE IN SHAREHOLDERS EQUITY CASH FLOW STATEMENT NOTES ACCOUNTING PRINCIPLES APPROPRIATION OF EARNINGS AUDIT REPORT CORPORATE GOVERNANCE BOARD OF DIRECTORS AND AUDITORS GROUP MANAGEMENT GLOSSARY AND DEFINITIONS ADDRESSES SWEDEN GROSS PREMIUMS WRITTEN, MSEK 12,9 NUMBER OF CUSTOMERS millions NUMBER OF EMPLOYEES... 1,76 NORWAY GROSS PREMIUMS WRITTEN, MSEK 12,4 NUMBER OF CUSTOMERS... 8, NUMBER OF EMPLOYEES... 1,81 FINLAND GROSS PREMIUMS WRITTEN, MSEK 8,3 NUMBER OF CUSTOMERS millions NUMBER OF EMPLOYEES... 2,29 DENMARK GROSS PREMIUMS WRITTEN, MSEK 2,7 NUMBER OF CUSTOMERS... 15, NUMBER OF EMPLOYEES... 4 BALTIC COUNTRIES GROSS PREMIUMS WRITTEN, MSEK 7 NUMBER OF CUSTOMERS... 25, NUMBER OF EMPLOYEES If P&C Insurance is the leading property and casualty insurance company in the Nordic region, with approximately 3.8 million customers in the Nordic and Baltic countries. If offers property and casualty insurance to customers in Sweden, Norway, Finland, Denmark and the Baltic countries, as well as international services for Nordic customers pursuing international operations. The Group has gross premiums written of SEK 39 billion and 7, employees. IF P&C INSURANCE HOLDING LTD CORP. REG. NO: SOLNA, STOCKHOLM, SWEDEN

3 YEAR IN BRIEF 1 Substantial improvement in earnings during 23 Operating profit of MSEK 2,72 (loss: 2,8) was reported for 23, an improvement of approximately SEK 4.8 billion. The combined ratio improved to 1.9 percent (16.1). The action program launched at the beginning of 22 had a positive impact on earnings, at the same time as the current-year claims result was favorable. The investment result benefited from falling interest rates at the beginning of the year and the upturn in equity markets. The investment return was 4.6 percent (2.1) calculated at current value. The return on equity was 15.5 percent (neg: 16.5). During the year, an agreement was concluded concerning the sale of the Marine & Energy business area to Gard Marine & Energy, an associated company. Through the divestment, If streamlines its operations and reduces most of its exposure to the marine and energy segment. In February 24, Sampo acquired Storebrand s, Skandia s and Skandia Liv s holdings of If shares. Assuming that the transaction is approved by the pertinent authorities, Sampo s holding will amount to 9 percent and Varma s holding 1 percent. KEY DATA, MSEK GROSS PREMIUMS WRITTEN 38,94 38,136 NET PREMIUMS EARNED 1) 34,392 32,789 TECHNICAL RESULT 1, INVESTMENT INCOME 3,75 69 OPERATING RESULT 2,72 2,8 COMBINED RATIO 1.9% 16.1% RISK RATIO 74.3% 77.8% COST RATIO 26.6% 28.3% INSURANCE MARGIN 4.7% 1.% CASH FLOW 5,915 4,992 2) RETURN ON EQUITY 15.5% 16.5% SOLVENCY RATIO 54.% 51.7% AVERAGE NUMBER OF EMPLOYEES 7,4 7,27 MSEK OPERATING RESULT AND COMBINED RATIO % 3, 12 2, 115 1, , 1 2, 95 3, 21 1) Operating result Combined ratio 1) Premiums earned correspond to accrued premiums written, net of reinsurance. 2) Cash flow excluding shareholder contributions of SEK 1.6 billion. 1) Pro forma, including Sampo s property and casualty insurance operations. MSEK 1,2 1, Private TECHNICAL RESULT PER BUSINESS AREA Commercial Industrial Baltic countries Other GROSS PREMIUMS WRITTEN PER SEGMENT Baltic countries 2% Marine & Energy 5% Industrial 19% Commercial 29% Private 45% GROSS PREMIUMS WRITTEN PER COUNTRY Other 5% Baltic countries 2% Denmark 7% Sweden 33% Finland 21% Norway 32% GROSS PREMIUMS WRITTEN PER PRODUCT Marine & Energy 5% Other 7% Workers Compensation 11% Property 33% Motor Third Party Liability 17% Liability 6% Motor, Hull 21%

4 2 PRESIDENT S STATEMENT Earnings improved by SEK 4.8 billion The past two years have been a period of intensive changeoriented work within If. We have implemented a comprehensive turnaround program that affected all areas of the Group and its employees. The actions taken have been characterized by a distinct focus on profitability and, thanks to the impressive efforts of all 7, employees, 23 was a highly successful year. Both profit from insurance operations and the positive performance of our investment business contributed to the approximately SEK 4.8 billion improvement in earnings during the year. The earnings improvement also highlights the strength of our Nordic business model and the potential represented by continued coordination gains. Earnings from insurance operations are now adequate. The main factors contributing to the improvement were the adjustment of insurance terms, in the form of increased premiums and deductibles, combined with reduced costs. In addition to the changes we implemented internally, the outcome for major claims, storms and other weather-related events was unusually favorable in 23. Lower level of costs improves competitiveness An important part of the completed turnaround program involved strengthening the company s competitiveness through cost savings. For the second consecutive year, we successfully reduced our internal costs. The efficiency improvement was due in part to a well functioning control system, which enabled all managers to monitor and influence their costs, and in part to the results of our continued Nordic integration. Costs were decreased through personnel reductions and renegotiated operating and administration agreements in the IT area, but mainly through greater cost awareness in our everyday operations. The Group is becoming increasingly Nordic in terms of structure and a growing number of customer concepts and work processes are being transferred across national borders. Proximity in terms of culture, language and geography facilitates regional cooperation among Nordic countries. During the year, Nordicwide work processes were introduced within such areas as claims centers and purchasing, which made a significant contribution to our successful earnings, by both improving service and reducing costs. This trend has been under way in Sweden, Norway and Denmark since autumn 1999, and started in Finland in 22. Nordic projects, such as the introduction of a Group-wide reinsurance program, Group-wide financial reporting programs, a data warehouse, procurement of asset-management services, a global custodian bank and a Group travel and advertising agency, enhanced organizational efficiency during the year. Continued low-risk strategy for asset management Since 22, our asset-management strategy has resulted in a small proportion of equities in the portfolio and a relatively short duration in the bond portfolio. This strategy should be viewed in the light of the global uncertainty in financial markets and the increased capital requirements associated with higher risks in the investment portfolio. As a result, we only participated to a limited extent in the upturn on stock markets during 23. The fixed-income portfolio generated satisfactory earnings, due to a general decline in market interest rates during the first half of the year, followed by an increase. During the year, we strengthened the finance department in order to actively manage our assets, based on our view of the market trend. We also started working with more external asset managers than before, in order to sharpen competition between them and to gain access to specialist management services. Sale of Marine & Energy releases capital Economies of scale provide If with a competitive edge and our strategy is to operate in areas that can be integrated with our Nordic operations. Accordingly, an agreement was reached at the end of the year to sell the globally active Marine & Energy business. The sale, which was concluded in January 24, will also reduce our capital requirements, since year-to-year earnings fluctuations in these operations have been considerable. The divestment will release capital, thus improving the If Group s solvency ratio by about 3.5 percentage points. Strengthened balance sheet and improved credit rating Our balance sheet was strengthened during the year. Our credit ratings are now A according to Standard & Poor s and A3 according to Moody s, an expression of strength compared with large segments of the market. Revised financial targets During the past two years, the property and casualty sector has adapted itself to expectations of lower investment returns in the future, compared with the 199s, by raising the general level of premiums. Implementation of such a policy takes time and it is only now that the Nordic property and casualty sector is beginning to approach sustainable premium levels. The new market conditions and the results we have achieved gave rise to a revision of our financial targets. Our long-term objective is to achieve a return on shareholders equity of 15 percent. The target for the combined ratio (claims and operating costs in relation to total premiums earned) for the next 2 3 years is percent.

5 PRESIDENT S STATEMENT 3 is gaining ground in the areas of claims reports and service. A unique Internet insurance service, which was already provided to our commercial customers in Finland, was launched in Norway during the year. A corresponding service is under development in Sweden and Denmark. Our new brand strategy, which was launched in the Group during 23 and emphasizes security and stability, encompasses marketing and sponsoring activities, as well as our changed visual identity. During 23, If was also introduced as a brand in Finnish and Baltic markets. Our advertising campaigns have established the brand, and awareness and preference surveys indicate that we are already well positioned, despite being such a young brand. Our gradually stronger brand will also create growth opportunities. Damage-prevention sponsorship As an insurance company, we regard it as important to actively support initiatives aimed at reducing injuries, damage and violent crimes. For example, in Sweden we sponsor the work of Fryshuset and the Respekt Foundation to help vulnerable children find a place in society. In Norway, If cooperates with Oslo Idrettskrets and other community organizations that proactively combat violence and provide young people in the Oslo area with meaningful activities. Long-term customer relations are the key to profitability The Nordic insurance sector is generally characterized by a high level of customer loyalty in both the commercial and private segments. Satisfied customers remain loyal longer and also have more insurance policies with us, which makes a favorable contribution to profitability. Our private customers remain with us for an average of six years, which helps to keep the cost of operations and, in turn, premium levels down. Continuously improved customer service and claims handling are decisive to our long-term success. As a result of improved IT systems and telephone services, combined with knowledgeable personnel, we can improve our claims-handling times and increase the standard of service. In the Private business area, which has 3.2 million customers, a program to enhance customer loyalty was introduced in 23. Among other incentives, the program means that customer deductibles are reduced each year that a customer remains with If. In recent years, the Internet has gained increasing importance in our customer service operations, particularly for commercial and industrial customers. Although the Internet still accounts for only a marginal proportion of total sales, this channel Outlook Fiscal 23 was a positive year, during which we reaped the benefits of a determined and comprehensive program of change. The premium increases and cost-cutting measures implemented in recent years will continue to have a favorable impact on earnings in the next two years. Our completed turnaround program has reduced the cost level and thus improved our competitiveness. Toward the end of the year, we achieved the goals we had set for the important renewal process. In view of this, I feel highly confident about the success prospects of the plans that we, as the leading property and casualty insurance company in the Nordic region, have set for 24. Without the dedicated commitment of all If employees this would not have been possible. I am proud of what we achieved together in 23 and would like to thank all employees for their hard work. Solna, March 24 Torbjörn Magnusson PRESIDENT AND CEO

6 4 BUSINESS MISSION, STRATEGY AND FINANCIAL TARGETS Stable profitability and selective growth If offers competitive insurance solutions in the Nordic region and Baltic countries and the company s overall objective is to create value for its customers, employees and shareholders. Steady improvements in service, products and processes will ensure sustainable long-term profitability. VISION If s vision is to be the leading casualty and property insurance company in the Nordic region and offer stability and security to its customers through competitive insurance solutions and superior insurance expertise. From If s viewpoint, being the leading player mainly entails that Customers will view If as the foremost insurance expert with the most competitive insurance solutions. Employees will regard If as the most attractive employer in the industry, offering a secure working environment with favorable development potential. Shareholders will view If as a stable investment that offers limited risk combined with an attractive return. BUSINESS MISSION If develops and sells efficient, high-quality property and casualty insurance solutions that offer customers security in their business operations, housing and daily lives. STRATEGY Realization of economies of scale in our Nordic model By capitalizing on the benefits offered by the Nordic organization in such areas as product development, pricing, and risk selection and through the introduction of standardized work processes, If can establish a lower cost level than its competitors, which will provide If with a competitive edge. Sharper customer focus Superior customer service and care are important factors in ensuring that current customers continue to select If as their insurance company. Availability and rapid claims adjustment are key factors affecting customer loyalty. Tailor-made customer concepts and programs that reward loyal customers represent significant initiatives in attracting and retaining customers. Cus- IF S CORE VALUES Reliable Dedicated Easy to reach and relate to Forward thinking If s core values are reflected in all of If s operations in internal work and customer contacts, as well as in relations with business partners and other stakeholders.

7 BUSINESS MISSION, STRATEGY AND FINANCIAL TARGETS 5 tomized digital solutions simplify the administration of insurance cover and also increase accessibility for private individuals and commercial customers. Selective growth If commands a strong position in the Nordic market and will continue its efforts to retain it. In addition, continuing growth in the Baltic countries is strategically important. If will strengthen its market position by means of organic growth and selective acquisitions in strategically important product areas in the Nordic region and Baltic countries. Investment strategy based on low risk If seeks a low risk level and a balance between the risks in its insurance and investment portfolios. If s investment strategy is to maintain a balance between its insurance commitments and investment assets in terms of currency and duration. Surplus capital is invested to enhance the total return. INSURANCE OPERATIONS Cost effectiveness Improved customer service Careful selection of risks Adequate pricing Economies of scale Cost benefits Increased stability IF S STRATEGY STABLE EARNINGS ASSET MANAGEMENT Low risk through Diversification Limited equity allocation Efficient processes Increased stability Financial targets If s overall long-term financial target is to achieve a return on equity, after paid taxes, corresponding to 15 percent. The Group aims to maintain a credit rating corresponding to an A rating from Standard & Poor s and Moody s. A continued focus on controlling risks within investment operations is expected to lead to stable earnings from asset management during the years immediately ahead. Income from insurance operations is expected to exceed total expenses, which means the combined ratio will be less than 1 percent. The target for the next three years, meaning 24 26, is that the Group s combined ratio will be percent. The combined ratio for the 23 fiscal year was 11 percent. If s solvency margin in 23 was 54 percent. LONG-TERM TARGETS Return on equity: 15 percent Credit rating: A rating from Standard & Poor s and Moody s SHORT-TERM TARGETS (24 26) Combined ratio: percent KEY FIGURES SHAREHOLDERS MSEK EQUITY % 18, 2 MSEK SOLVENCY CAPITAL % 21, 57 % COMBINED RATIO , 1 18, , 9, 6, , 12, 9, 6, , 3 3, ) ) Shareholders equity Return on equity Return on equity target Solvency capital Solvency margin Combined ratio Target ) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations.

8 6 MARKET AND COMPETITORS Unique market position in the Nordic region If is the largest casualty and property insurance company in the Nordic region and one of the 15 largest in Europe. With an estimated total premium value of SEK 14 billion, the Nordic region is the seventh largest insurance market in Europe. The Nordic casualty and property market comprises about 1 million private customers. As in most other European countries, the Nordic property and casualty market is concentrated to a few players. In recent years, increased specialization has emerged as a result of spin-offs from savings companies and banks, as exemplified by the establishment of If. Continued consolidation and specialization The Nordic insurance market has been consolidated in recent years, with about ten players retreating from the market. The five largest companies command two thirds of the market and three of the companies are active in more than one Nordic country. The market share of the largest companies has risen sharply since Continued consolidation is expected in both the Nordic region and the Baltic countries. If is the only specialized Nordic property and casualty company, although certain competitors pursue specialist, crossborder operations. If s total market share corresponds to almost 25 percent of the Nordic market. The company is the largest property and casualty insurance company in Norway and Finland, accounting for one third of the market. In Sweden, If the second largest company with a market share of 23 percent. In the somewhat fragmented Danish market, If is the fifth largest player with a market share of 5 percent. If has also established a presence as one of the major players in the Baltic countries, being a market leader in Estonia, with 37 percent, and holding market shares of 7 percent in both Latvia and Lithuania. Casualty and property insurance a mature market The Nordic casualty and property insurance market is mature, with average annual premium growth of 4.4 percent during the past decade, slightly higher than gross domestic product growth (GDP growth) during the same period. Growth remains high in the Baltic countries, due to accelerating economic growth and more stringent insurance requirements in recent years. For example, Motor Third Party Liability insurance did not become compulsory in the Lithuanian market until 22. It has become evident in recent years that the public welfare system in the Nordic countries is unable to satisfy the requirements and expectations of individuals and companies. This has led to higher demand for private insurance solutions in the health and medical care areas. Rising demand is also being noted in the labor market area for insurance solutions that supplement those offered to date by publicly regulated systems. Focus on profitability throughout the industry During the 199s, premium levels fell in relation to GDP. Due to the low premium levels, the entire industry incurred considerable losses. Profitability in the sector has improved during the past years, thanks mainly to increased premiums. In recent years, the insurers potential to finance unprofitable insurance lines by means of high investment returns has been reduced, due to low interest rates, which have reduced the return from investment operations. The profitability objectives set for both mutual companies and other types of companies in the industry reflect this trend. Substantial increases in reinsurance premiums were also implemented during 2 22, due to major claims such as the attack on the World Trade Center and flooding in Europe. This factor, combined with the decline in financial markets, led CONSOLIDATION OF PROPERTY & CASUALTY INSURANCE MARKET 65% % 34% The five largest companies share of gross premiums written in the property & casualty insurance market; 1995 compared with % Source: Eurothesys/Standard & Poor s. Tryg Vesta Codan Gjensidige Länsförsäkringar Topdanmark Folksam Pohjola Tapiola Fennia THE NORDIC PROPERTY & CASUALTY INSURANCE MARKET 22 GROSS PREMIUMS WRITTEN (SEK billion) If Source: Companies annual reports.

9 MARKET AND COMPETITORS 7 % GROSS PREMIUMS WRITTEN IN NORDIC PROPERTY & CASUALTY MARKET IN RELATION TO GDP Finland Norway Sweden Denmark Source: Eurothesys, annual reports, Norwegian, Swedish, Danish and European Insurance associations and Statistics Sweden Average During the 199s, premium levels declined in relation to GDP. The premium increases implemented in recent years have improved the relationship between GDP and gross premiums. to the exit of a number of players and an increase in premium levels. Moreover, cuts in the credit ratings of a number of major reinsurers, which therefore no longer fulfill financial-solvency demands, has also reduced the direct insurers reinsurance opportunities. Changes in sales and claims-adjustment channels Sales in the Nordic property and casualty insurance industry are shifting increasingly towards cost-effective sales channels, such as telephones and the Internet. In Sweden about 84 percent of If s sales to private individuals are made via telephone and Internet. The corresponding figure in Norway is about 6 percent. Other sales in these markets are primarily via local office networks. In Finland, sales of casualty and property insurance products via local offices or through cooperation with pension and savings companies are commonplace. In Denmark, a more fragmented market with many relatively small players, the major share of casualty and property insurance policies result from personal sales. If uses cost-effective channels, such as telephones and the Internet, to a larger degree than its Nordic competitors. Sales of commercial and industrial insurance are increasingly channeled through brokers. The proportion of brokered business within If s Commercial and Industrial operations increased by 6 percent during the year. MARKET SHARE IF POSITION Finland 1 32% 35% 36% Norway 1 31% 33% 35% Sweden 2 23% 23% 23% Denmark 5 n.a 5% 5% Nordic region 1 n.a 23% 24% MARKET SHARES IN SWEDEN Other 9% Zurich 3% Folksam 15% Trygg- Hansa 19% If 23% Länsförsäkringar 31% MARKET SHARES IN DENMARK 1) Other 35% Alm. Brand 1% If 5% Tryg 2% Top Danmark 17% Codan 13% Vesta 2% MARKET SHARES IN NORWAY Sparebank 1 1% Fennia 9% Other 9% Gjensidige 3% MARKET SHARES IN FINLAND Other 9% Lähivakuutus 8% Tapiola 17% Pohjola 25% If 31% If 32% FINLAND If is represented at about 1 locations. Seven customer centers take care of insurance matters and claims reports over the telephone. NORWAY If has offices and agents at about 1 locations. In about ten locations, insurance is sold directly via car dealers. SWEDEN Most insurance matters are handled by If s five customer centers. Commercial customers also have access to about 2 local sales offices. DENMARK Sales are mainly channeled through If s two customer centers, and through local agents. BALTIC COUNTRIES If has more than 4 local offices in the Baltic countries, with Estonia accounting for half. If s customers Private Commercial Industrial Baltic countries Number of customers 3,2, 36, 1,2 25, Premium volume (MSEK) 17,39 11,35 7,57 65 Average premium per customer (SEK) 5,4 32, 6,31, 2,6 Source: Statistics from Danish, Finnish, Norwegian and Swedish trade associations. 1) Market share statistics for 22. If s gross premiums written have been supplemented.

10 8 MARKET AND COMPETITORS IF A YOUNG BRAND If was launched as a brand in Sweden, Norway and Denmark in conjunction with the establishment of the company in In the Finnish market and the Baltic countries, the brand was successfully launched in early 23. Brand awareness is steadily growing in the major markets and in the Baltic region. Market polls show that a third of the Finnish market spontaneously says there is an insurance company in the market called If, while about two-thirds respond that they have heard of an insurance company called If when prompted. In Denmark, where If has a market share of approximately 5 percent, brand awareness has declined in the past two years. This is mainly due to fewer marketing activities. Insurance cover in cooperation with car dealers In cooperation with vehicle importers and dealers, If offers car-make insurance, such as Volvia and Mitsubishi Försäkring. In Sweden, If is the market leader in this segment. In Norway and Finland, car-make insurance is sold only under the Volvia brand. % 1 BRAND AWARENESS 1) Finland Norway Sweden Denmark 1) Percentage of market responding yes to the question of whether they have heard of an insurance company called If. The figures from 2 reflect the average for Q2 Q4. If endeavors to provide clear and harmonized communication in all markets.

11 IT 9 Information technology enhances customer service The use of information technology is a crucial feature of If s operations and is a prerequisite for offering superior customer service and efficient workplaces. During the fiscal year, efforts focused primarily on improving and automating work processes involving customer service and claims adjustment. Cost-effective IT operation is a key factor underlying the Group s competitiveness and profitability, since information technology accounts for 17 percent of If s total operating costs, with operation and maintenance representing about 8 percent of overall IT costs. During the year, IT costs totaled MSEK 1,54 (1,62), excluding write-downs. The reduction compared with the preceding year was mainly attributable to increased efficiency. The Internet and telephony have become increasingly important channels for insurance customers. The number of policies arranged via the Internet and telephones represented about 7 percent of the total number of policies sold. If s website attracts more than 2, visitors per month, an increase of 22 percent compared with the preceding year. IT solutions improve efficiency Increased use of IT has led to more efficient work processes and improved quality in the handling of insurance matters, thereby enhancing customer service. Processing periods for insurance and claims matters were shortened during the year. The proportion of private claims settled during the initial customer IF S IT ORGANIZATION If s IT infrastructure comprises mainly networks, PCs and mainframes, applications and processes. Each business area has an IT manager who is responsible for coordinating IT matters in line with the central IT organization. The IT infrastructure is run and developed in cooperation with two main suppliers TietoEnator in Finland and IBM in the rest of the Nordic region. IT COSTS AS A SHARE OF TOTAL COSTS IT 17% Total costs: MSEK 9,133. IT COSTS DISTRIBUTED BY COST CATEGORY New investments 2% Operation and maintenance 8% Total IT costs: MSEK 1,75. contact by telephone is rising, while 55 percent of commercial claims are settled within 24 hours. In Finland, for example, personal claims are processed and filed electronically, while in Sweden If has developed solutions that enable customers with car insurance from Volvia and Saab Försäkring (for whom If is the insurer) to pay their premiums using Volvo and Saab charge cards. Innovation and advances involving information technology Efforts designed to create joint Nordic IT solutions to replace or enhance the efficiency of various local computer systems continued during the year. Primus An insurance and customer-service system developed in the Private business area in Finland. At year-end 23, 14, customers were registered in the system. CIC A tool for providing comprehensive insurance services to Commercial s smaller customers via the Internet. The system has been introduced in Norway and Finland. Lighthouse A production system used throughout the Industrial business area. The system will replace eight existing and geographically separate systems and is expected to be fully deployed in 25. If Box A customer tool developed by the Industrial business area in Finland that enables customers to check insurance cover and report claims via the Internet. At the end of 23, capitalized costs for the development of the Commercial business area s insurance systems in Sweden were written down by a total of MSEK 13. It has been concluded that it will not be possible to deploy the system in accordance with the original plan, since the software has displayed limitations in relation to the required functionality. IT SECURITY The Internet and all connections to public networks give rise to the need for security against unsolicited (spam), computer viruses and hackers. Programs designed to provide protection against external threats are continuously in progress and, as part of this work, If regularly arranges training programs for Group employees and has introduced procedures and guidelines governing, for example, logging in from home, scanning and Internet use. To ensure swift and effective system restarting in the event of unscheduled disruptions, If continuously devises and revises emergency plans in consultation with the business areas. The IT unit has a security manager who is a member of the Group s Risk Management team.

12 1 BUSINESS AREA PRIVATE Implemented action program boosted earnings Private The Private business area is a market leader in private property and casualty insurance in the Nordic region, offering comprehensive insurance cover to individuals in Norway, Sweden, Finland and Denmark. It has 3.2 million customers. Products: Motor, Homeowner, Household, Summer Cottage, Domestic Animal, Boat, Accident, Children and Travel insurance. Brands: If, Europeiske (Travel insurance in Norway) and car-make insurance in cooperation with car manufacturers and brand workshops, such as Saab Försäkring and Volvia. Distribution: Sales, customer-service and claims-adjustment operations are organized locally. 56 percent of sales and customer service are conducted via If s customer centers, where matters are handled by telephone. Most sales in Sweden (84 percent) take place via telephone. In the other countries, sales are conducted to a greater extent via local offices or agents (47 percent in Finland, 36 percent in Norway and 64 percent in Denmark). BUSINESS TREND DURING THE YEAR Actions aimed at raising earnings, such as premium adjustments, improved risk selection and efficiency enhancement of work processes had an impact during the year, particularly in Norwegian and Danish operations. A favorable claims trend, with low claims frequency and fewer large claims than normal, also made a positive contribution. The technical result improved to a profit of MSEK 1,158 (112). The combined ratio was reduced by 6.8 percentage points to 98.7 percent. The transition to more cost-effective sales channels, such as telephony and the Internet, had a positive impact on the cost trend. In addition, centralized and coordinated market activities among the various countries enhanced efficiency. Reduced IT costs and workforce reductions during recent years have had a favorable effect on costs. Since an increasing number of customers are deciding to deal with their insurance matters via telephone, operations in Finland continued to shift from local centers to customer service and claims centers. The number of local offices in Finland was reduced from 84 to 69 during 23. The percentage of customers managing their insurance matters via the Internet rose by some 4 percent during the year to approximately 19,. GROSS PREMIUMS WRITTEN PER PRODUCT Other 5% Accident 5% Household and homeowners 28% GROSS PREMIUMS WRITTEN PER COUNTRY Sweden 39% Motor Third Party Liability 28% Denmark 5% Motor, Hull 34% Finland 2% Norway 36% GROSS PREMIUMS WRITTEN PER DISTRIBUTION CHANNEL MSEK 7, 6, 5, 4, 3, 2, 1, Other 6% Telephone sales 5% Customer Centers 52% Car dealers 13% Agents 12% Branch offices 12% PRODUCT MIX PER COUNTRY Finland Norway Sweden Denmark Motor Accident Household Other Homeowner KEY DATA, MSEK ) GROSS PREMIUMS WRITTEN 17,387 16,241 15,336 NET PREMIUMS EARNED 16,326 15,549 14,559 UNDERWRITING RESULT ,87 TECHNICAL RESULT 1, RISK RATIO 72.2% 76.% 75.4% COST RATIO 26.5% 29.5% 32.1% COMBINED RATIO 98.7% 15.5% 17.5% INSURANCE MARGIN 7.1%.7% 1.5% RESULT FROM PRIOR-YEAR CLAIMS TECHNICAL PROVISIONS: GROSS 27,981 26,425 n.a NET 27,76 26,112 n.a AVERAGE NUMBER OF EMPLOYEES 2,941 n.a n.a 1) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations. MARKET AND STRATEGY The policy-renewal rate is historically high in the Nordic countries, ranging from 82 to 9 percent. Incorrect pricing of property and casualty policies during the 199s, which gave rise to substantial losses and the need for extensive premium increases in the market, has increased price awareness and mobility among customers. As a result, improved customer service and accessibility are increasingly important tools to maintain and raise the renewal rate. A program was launched in Norway and Sweden during the year in order to increase customer loyalty. Customers who remain loyal to If are rewarded in the form of a service offer that includes, for example, a free change to winter tires or a home

13 BUSINESS AREA PRIVATE 11 Loss prevention is a key feature of If s strategy. At If s safety shop, customers can order products that make their daily lives safer. security review. A personal deductible account was introduced for individuals with homeowner, car or household policies with If. For each claims-free year, If will deposit SEK 2 per type of insurance in the customer s deductible account when the policy is renewed. In the event of a claim, the amount in the deductible account may be used to pay all or part of the deductible. In order to strengthen customer relations, If cooperates with external business partners. In Norway, for example, an offer to rent children s car seats has been introduced. Similar cooperation with a number of security companies is in progress involving, for example, anti-theft marking of boats. FUTURE FOCUS As a result of the continual development of existing IT systems, If s efficiency and productivity, and thus customer service, will be further improved. Among other developments, electronic archives will be introduced, while systems for correspondence with customers and document scanning will be upgraded. Since customer interest in handling insurance matters via the Internet is growing, Internet services will be further developed so that customers are offered the possibility to conduct all of their policy, claims and payment matters via the Internet. During 24, standardized pricelists will be reviewed in order to create a pan-nordic pricing structure. MSEK 18, 17, 16, 15, 14, 13, GROSS/NET PREMIUMS WRITTEN 211) Net premiums written MSEK 1,4 1,2 1, TECHNICAL RESULT 211) Technical result MSEK 18, 15, 12, 9, 6, 3, COMBINED RATIO 211) Risk ratio Cost ratio Net premiums earned % ) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations.

14 12 BUSINESS AREA COMMERCIAL Increased efficiency contributed to earnings improvement Commercial Commercial is a market leader in the Nordic region among small and medium-sized companies (companies with up to 5 employees) and conducts operations in Sweden, Finland, Norway and Denmark. The business area has 36, customers. Products: Motor, Property, Liability, Workers Compensation, Cargo and Travel insurance. About 6 percent of customers are small companies who are offered standardized insurance solutions, while the remaining 4 percent of operations require more specialized insurance solutions and advice. Distribution: Sales, customer service and claims handling are locally organized. Some 5 percent of sales and customer service proceed through If s claims and customer centers, where matters are dealt with via telephone. Other sales are conducted via local sales personnel, representatives or insurance brokers. During the year, the percentage of brokered business rose by 2 percent and the use of Internet solutions increased by 1 percent. GROSS PREMIUMS WRITTEN PER PRODUCT Other 3% Cargo 6% Workers Compensation 19% Motor Third Party Liability 1% Motor, Hull 16% Property 36% Liability 1% GROSS PREMIUMS WRITTEN PER DISTRIBUTION CHANNEL Brokers 2% Agents 16% Subcontractors 2% Own sales force 44% BUSINESS TREND DURING THE YEAR Earnings doubled compared with the preceding year, mainly as result of positive trends in Norwegian, Swedish and Danish operations. Premium adjustments and cost savings made an impact during the year, at the same time as claims trends within Motor and Transport insurance were favorable. In particular, there were fewer large claims than normal. The trend for large Property claims in Norway and Sweden improved considerably and contributed positively to earnings. The technical result advanced to MSEK 358 (17), with the combined ratio falling to 11.9 (14.6) percent. Increased cost awareness and the transition to more cost-effective work processes had a positive effect on the cost trend. The method for customer segmentation was further refined and is being used for the pricing and assessment of new risks. As a result of the improved risk-assessment capability, loss-prevention programs were implemented in claims-prone sectors during 23. KEY DATA, MSEK ) GROSS PREMIUMS WRITTEN 11,35 1,88 1,7 NET PREMIUMS EARNED 1,528 1,195 9,459 UNDERWRITING RESULT TECHNICAL RESULT RISK RATIO 74.1% 76.% 79.6% COST RATIO 27.8% 28.6% 28.5% COMBINED RATIO 11.9% 14.6% 18.1% INSURANCE MARGIN 3.4% 1.7% 2.4% RESULT FROM PRIOR-YEAR CLAIMS TECHNICAL PROVISIONS: GROSS 2,444 2,394 n.a NET 18,664 18,322 n.a AVERAGE NUMBER OF EMPLOYEES 2,214 n.a n.a 1) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations. GROSS PREMIUMS WRITTEN PER COUNTRY Sweden 24% Denmark 9% Norway 44% Finland 23% MSEK 5, 4, 3, 2, 1, Finland Norway Sweden Denmark Property Transport PRODUCT MIX PER COUNTRY Motor Liability Workers Compensation MARKET AND STRATEGY The policy-renewal rate in the Nordic countries is historically high, ranging from 78 to 85 percent, depending on the market. This applies in particular to the Finnish market, where Workers Compensation insurance represents almost 5 percent of commercial operations, which noted a renewal rate of 98 percent in 23, at the same time as risk selection became stricter. Work on developing and improving the product range is conducted continuously and, for example, a new Health insurance product for commercial customers was introduced in Finland during the latter part of the year. Greater accessibility and improved service for our customers via the Internet is expected to further strengthen customer relations. More than 3, customers in Norway and Finland now use Internet services that enable policyholders to review their policies and communicate with insurance and claimsadjustment staff. About 2, customers are using the tool in Norway, where it has been available since 22. In Finland,

15 BUSINESS AREA COMMERCIAL 13 The relocation of easily inflammable materials is an example of the loss-prevention measures conducted successfully during the year in industries that are particularly accident-prone. the number of users more than doubled during the year. Introduction of the service for Swedish insurance customers is scheduled for 24. The business area also worked actively during the year to improve the efficiency of in-house e-service solutions and work processes, such as electronic filing systems and document scanning. FUTURE FOCUS Customer service will be improved through the refinement of existing Internet solutions and the launch of new Internet services. If s overall expertise will be utilized more efficiently and deployed in practical loss-prevention programs. Work aimed at utilizing IT solutions in an effort to reduce costs and raise the efficiency of sales and claims activities is continuing in all parts of the business. In 24, priority will be assigned primarily to work on efficiency-enhancing measures for Finnish operations. The customer and risk-selection method used to ensure the quality of the business area s insurance portfolio is upgraded continuously. This method, which is currently being used in Denmark, Norway and Sweden, will be introduced in Finland during 24. MSEK 12, GROSS/NET PREMIUMS WRITTEN MSEK 4 TECHNICAL RESULT MSEK 12, COMBINED RATIO % 12 1, 8, 6, 4, , 8, 6, 4, , 2 2, 2 211) Net premiums written 3 211) 22 Technical result ) Risk ratio Cost ratio Net premiums earned 1) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations.

16 14 BUSINESS AREA INDUSTRIAL Improved risk selection paid off Industrial Industrial is a market leader in industrial insurance in the Nordic region and insures industrial groups headquartered in the Nordic region. Customers are primarily companies with sales exceeding MSEK 5, a workforce of more than 5 employees and complex insurance requirements. The business area has more than 1,2 customers. Products: Property, Liability, Cargo, Workers Compensation, Motor and Travel insurance. Outside the Nordic countries, the Group s offering focuses on three main products: Property, Liability and Transport insurance. The business area also offers consulting services and training in risk management and loss prevention. Distribution: Sales, customer-service and claims-handling activities are mainly organized on a local basis in each market. The brokered share of gross premiums in the portfolio rose slightly during the year and represents about two thirds of the premium volume in Sweden, Norway and Denmark and one third in Finland. Outside the Nordic region, If provides services via its own branches and via international business partners. GROSS PREMIUMS WRITTEN PER PRODUCT Other 2% Workers Compensation 15% Cargo 13% Motor 5% Liability 18% Property 47% GROSS/NET PREMIUMS WRITTEN MSEK PER PRODUCT 4, 3,5 3, 2,5 2, 1,5 1, 5 Property Liability Motor Cargo Net premiums written Workers Compensation GROSS/NET PREMIUMS WRITTEN MSEK PER COUNTRY 4, 3, 2, 1, GROSS PREMIUMS WRITTEN PER COUNTRY Finland Denmark 1% Sweden 43% Norway Finland 3% Norway 17% Sweden Net premiums written Denmark BUSINESS TREND DURING THE YEAR Earnings improved compared with 22, despite large prioryear claims losses. Premium adjustments, more stringent risk selection and a favorable trend for current-year claims contributed to the positive earnings trend. The technical result amounted to profit of MSEK 156 (loss: 143). The combined ratio improved to 12.7 percent (19.7). Risk selection improved because of such factors as more efficient selection processes and the company s risk engineers are now more actively involved. A new pricing tool has been developed for the three main products Property, Liability and Transport insurance. The tool was introduced for Property insurance in 23 and will also encompass Liability and Transport insurance during 24. The objective is to apply the pricing process uniformly throughout the business area. During the year, If introduced net pricing for brokered business in Norway and Finland, which means that premiums no longer include the broker s fee. The broker s fee is now determined directly between the customer and the broker. This increases transparency, since customers can clearly see the insurance cost of an individual risk. Net pricing will be introduced in Sweden and Denmark in March 24. Accordingly, cost of operations and premium income will both fall substantially, since commission payments to brokers represent almost one third of the total cost of operations. KEY DATA, MSEK ) GROSS PREMIUMS WRITTEN 7,567 8,38 6,561 NET PREMIUMS EARNED 5,363 4,918 4,297 UNDERWRITING RESULT TECHNICAL RESULT RISK RATIO 79.8% 84.8% 9.3% COST RATIO 22.9% 24.9% 27.3% COMBINED RATIO 12.7% 19.7% 117.6% INSURANCE MARGIN 2.9% 2.9% 11.5% RESULT FROM PRIOR-YEAR CLAIMS TECHNICAL PROVISIONS: GROSS 13,957 14,615 n.a NET 11,296 1,923 n.a AVERAGE NUMBER OF EMPLOYEES 421 n.a n.a 1) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations. MARKET AND STRATEGY Customer demand for risk-management services and protection concepts has increased. A strategic decision was taken during the year to further sharpen the focus of risk management within several risk-prone areas. Demand for risk-management services and protection concepts covering non-physical risks, such as contractual risks and IT risks, has also increased. To be able to offer customers specialist risk-management expertise, If has established specialists teams that include engineers and lawyers.

17 BUSINESS AREA INDUSTRIAL 15 If s risk specialists for fire, liability or occupational injuries may be consulted for loss-prevention advice. Customer demands for service and availability are increasing. In Finland, customers who use the IfBox Internet tool can personally handle certain of their insurance matters directly within If s system. Many If customers pursue operations outside the Nordic countries. In an effort to offer more efficient local service, even in countries where If does not have its own operations, cooperation with certain selected international partners has been intensified. FUTURE FOCUS Programs aimed at strengthening relations with customers and brokers will be implemented in order to extend the average contract period. Stronger cooperation between Risk Management and Underwriting (the unit that prices risks) in the risk-selection process is expected to steadily improve portfolio quality. Efficiency enhancement of work processes and stricter criteria for risk selection will further sharpen If s competitiveness. The products under development include Lighthouse, a joint Nordic production system expected to be fully deployed in 25. Lighthouse will replace eight existing systems. MSEK 9, 8, 7, 6, 5, 4, 3, 2, 1, GROSS/NET PREMIUMS WRITTEN 211) Net premiums written MSEK TECHNICAL RESULT 211) Technical result MSEK 6, 5, 4, 3, 2, 1, COMBINED RATIO 211) Risk ratio Cost ratio Net premiums earned % ) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations.

18 16 BUSINESS AREA BALTIC COUNTRIES Growth markets Baltic countries If is the market leader in Estonia, with a 37-percent share. If has market shares of 7 percent in both Latvia and Lithuania. Number of customers: 25,. Products: Liability, Motor, Property, Accident and Cargo insurance. Distribution: In Estonia, sales are mainly channeled through in-house salespeople and brokers. In the two other countries, brokered business is the principal channel. GROSS PREMIUMS WRITTEN PER COUNTRY Latvia 15% Lithuania 17% Estonia 68% GROSS PREMIUMS WRITTEN PER DISTRIBUTION CHANNEL Other 11% Customer Centers 4% Brokers 39% Own sales force 46% BUSINESS TREND DURING THE YEAR Market growth in the region is robust. Gross premiums written rose by 25 percent compared with 22, mainly as a result of increased sales. The earnings trend in Estonia was favorable but the technical result weakened somewhat to MSEK 23 (28). If has a market share 37 percent in Estonia and the Estonian portfolio accounts for two thirds of total gross premiums written in the business area. The risk ratio rose, partly because of largerthan-normal losses from large claims. The combined ratio deteriorated somewhat. The If brand was launched in the region during 23 and the market reception was positive. In Estonia, 5 percent of customers in If s main target groups recognize the If brand. Favorable results from a trial launch of telephone services in Estonia during the year will provide a platform for an additional increase in efficiency. KEY DATA, MSEK ) GROSS PREMIUMS WRITTEN PER PRODUCT Other 1% Accident 4% Cargo 4% Motor Third Party Liability 23% Motor, Hull 33% Property 29% Liability 6% MSEK Estonia Property Transport PRODUCT MIX PER COUNTRY Latvia Motor Accident Lithuania Liability GROSS PREMIUMS WRITTEN NET PREMIUMS EARNED UNDERWRITING RESULT TECHNICAL RESULT RISK RATIO 57.9% 52.5% 64.4% COST RATIO 39.8% 43.7% 43.4% COMBINED RATIO 97.7% 96.3% 17.8% INSURANCE MARGIN 4.% 6.1% 7.8% RESULT FROM PRIOR-YEAR CLAIMS 8 21 n.a TECHNICAL PROVISIONS: GROSS n.a NET n.a AVERAGE NUMBER OF EMPLOYEES 686 n.a n.a 1) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations. MSEK 7 GROSS/NET PREMIUMS WRITTEN MSEK 3 TECHNICAL RESULT MSEK 6 COMBINED RATIO % ) ) Technical result 211) Risk ratio Cost ratio Net premiums earned 1) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations.

19 OTHER OPERATIONS MARINE & ENERGY AND RUN-OFF 17 Risk exposure reduced during the year An agreement concerning the sale of Marine & Energy operations to Gard Marine & Energy was concluded during the year. The sale will streamline If s operations and reduce most of its exposure to the marine and energy segment. The sale was completed on January 28, 24 and the sales price was MSEK 22. If's shareholding in Gard Marine & Energy is 42 percent but will be gradually reduced. This holding is included as a financial investment in If s equity portfolio. During 24, the marine portfolio, which accounts for about 6 percent of the total portfolio, has continued to be underwritten by If, but it is fully reinsured with Gard. Marine & Energy Full-year results deteriorated, mainly due to negative results for major claims at the end of the year. The combined ratio was percent (111.6) and the technical result declined to a loss of MSEK 143 (loss: 63). Earnings were also adversely affected by the one-off effect of the commutation (final settlement) of a claim in the second quarter. This commutation resulted in an adjustment of technical provisions (reserves). Due to the adjustment of reserves and a weaker exchange rate for the US dollar, reserves at December 31, 23 decreased to MSEK 3,462 (5,51). MSEK 3, GROSS/NET PREMIUMS WRITTEN MSEK 5 TECHNICAL RESULT MSEK 2, COMBINED RATIO % 15 2,5 1, , 5 1,5 1 1,5 1 1, , 15 1, ) ) 22 Technical result ) Risk ratio Cost ratio Net premiums earned 1) Figures for 21 are pro forma calculations, including Sampo s property & casualty insurance operations. If s Run-off unit is managed separately from If s other operations. The unit has 47 employees at offices in Helsinki, London, Miami, Oslo and Stockholm. In 22, in connection with the merger of If and Sampo s property and casualty operations, a strategy was introduced to reduce risk exposure through the sale of companies and commutation activities, meaning agreements covering the final settlement of existing agreements with insured customers. Total net technical provisions were reduced to SEK.9 billion (2.1) in 23. If uses external specialist actuaries on a regular basis, in order to ensure that its provisions comply with standard international practice. During the year, agreements were concluded covering the divestment of the Cumulus and Cirrus companies. If intends to continue to divest companies and thus reduce its risk exposure within this portfolio. In connection with the acquisition of Sampo s property and casualty operations, Sampo, Skandia and Storebrand concluded an agreement under which If was guaranteed compensation for losses incurred by the run-off operations transferred to If as part of the original merger of Skandia and Storebrand. According to Run-off MSEK 4, 3,5 3, 2,5 2, 1,5 1, 5 Technical provisions, net TECHNICAL PROVISIONS, RUN-OFF Technical provisions, gross this agreement which extends over five years the guarantee covers all types of operating losses. The total compensation, of which MSEK 138 has been accrued, is limited to MSEK 35 and will be definitively determined on March 31, 26. MSEK 8 of this guarantee was booked in earnings for 23.

20 18 ASSET MANAGEMENT Active asset management Investment policy If shapes its investment policy on the basis of two main principles: matching and diversification. Matching means that the management of investment assets must be adapted to insurance obligations, including currency and maturities. Adaptation is conducted in a manner that ensures that variations in interest, inflation and exchange rates have a minimum effect on If s financial position. ASSETS MATCHED ASSETS GLOBAL DIVERSIFICATION MATCHING CURRENCY DURATION LIABILITIES TECHNICAL LIABILITIES SOLVENCY CAPITAL Insurance commitments are affected by changes in future monetary values. In order to cover this risk, If buys index-linked bonds that are linked to the consumer price index. If index-linked bonds are not available, such as for NOK, investment assets most similar to index-linked bonds are used. In certain special cases, the insurance commitments are nominal and thus not sensitive to variations in future monetary values. Nominal bonds are used for these commitments. All commitments in the bond portfolio are matched in terms of currencies. Surplus assets, meaning those remaining after obligations have been matched, are invested using diversification as the primary principle, which means that the investment is spread across various asset categories and markets so that risks offset each other. Risk taking is adapted to satisfy various restrictions, such as regulatory demands regarding financial strength and technical provision coverage, If s credit rating and shareholder risk preferences. The investment policy stipulates target values for the various asset categories, such as the proportion of equities and target durations for fixed-income securities. In addition to the benchmark values, limit values have been set, within which If engages in tactical allocations. A large share of these positions is taken using derivatives. A stronger investment organization ensures better management and control over external asset managers. Positive earnings trend The management of If s investment assets is of key importance to overall business results. When managing its assets, If focuses to a great extent on absolute return and risk control. On December 31, 23, investment assets amounted to SEK 73 billion, representing an increase of SEK 3.1 billion during the year, mainly as a result of a positive cash flow from insurance operations. Fixed-income securities accounted for 87 percent and equities for approximately 9 percent. Major fluctuations in global capital markets were a hallmark of 23. Prices on the world s stock markets declined during the first quarter but then rose sharply. Market interest rates on bonds fell during the first six months before rising during the latter part of the year following signs of an economic upturn. The fixedincome portfolio yielded a return of 4. percent and the equity portfolio a return of 13.4 percent for the year as a whole. The return on properties was negative, due to write-downs of Finnish properties. The total investment return was SEK 3.1 billion. Administration costs totaled 14. The reported investment return, which does not include unrealized value changes in fixed-income securities, was SEK 3.8 billion. Earnings were charged with write-downs of, for example, shares in run-off operations by approximately MSEK 22 and real estate in Finland by about MSEK 26. Increased number of external asset managers If s investment assets were previously managed by the asset management organizations of Sampo, Storebrand and Den norske Bank, subject to the limits set by If. The agreements with these managers expired at the end of 22 and, as of 23, If could initiate procurement of new asset management services. The procurement process led to the use of an additional two asset managers for the Scandinavian investment program. MSEK 4, 3,5 3, 2,5 2, 1,5 1, 5 Book value 22 INVESTMENT RETURN Current value 23