Solvency II and Mandatum Life. Sampo Group, Capital Markets Day 11 September 2015

Transcription

1 Solvency II and Mandatum Life Sampo Group, Capital Markets Day 11 September 2015

2 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 3.00% Solvency II discount rate (30 June 2015) 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% EUR SWAP Solvency II-curve

3 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 13,000 IFRS balance sheet SII liabilities 12,000 11,000 1, ,095 1,542 10,000 EURm 9,000 8,000 7,000 6,000 12,642 5,774 5,299 5,299 5,000 4,000 3,000 2,000 5,083 4,614 5,304 1, Assets liabilities SII liabilities (incl. transitionals) SII liabilities (excl. transitionals) Assets Other With-profit Unit Linked Sub. Ord. Loan SH Equity/own funds

4 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 Deduction fixed per 1 Jan m (estimate per 6/2015) Liability with transitional measures EUR 3,225 million Deduction decreases to zero over 16-year transitional period. 1 January 2016* 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.

5 Solvency II Capital Requirement (SCR) and Own funds, 30 June 2015 With transitional measures Equity risk transitionals decrease market risk and SCR, while transitional measures on technical provisions increase own funds Without transitional measures Equity transitional 7 years Technical provisions transitional 16 years EURm EURm LAC = Loss Absorbing Capacity TP = Technical Provision DT = Deferred Taxes

6 Estimated Sensitivities after 1 January 2016* 2500 ** 155% 151% 158% 160% 152% 175% EURm Own Funds SCR Own Funds SCR Own Funds SCR Own Funds SCR Own Funds SCR Own Funds SCR Interest Rates - 25 bp Interest Rates + 25 bp Equity -10 % Credit Spread + 50 % Equity weight - 10 %- point --> FI *) 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.

7 Trend of Liabilities and Own Funds 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 ( ) and Unit Linked liabilities are expected to increase. Million EUR Positive trend for Own Funds.

8 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. 1,600 SCR Forecast* 1,400 1,200 EURm 1, *) Current asset allocation + expected liability trends.

9 Appendices

10 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 Transitional Measure on riskfree interest rates YES NO 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. 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

11 Equity risk Equity Risk SCR SCR Market Risk Modules EEA/OECD based (Type I) non-eea/oecd based (Type II) Basic stress 39 % 49 % Symmetric Adjustment +/- 10 %-point +/- 10 %-point capital requirement % 39-59% Spread risk 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. Alternative investments (Private EQ, Commodity) are classified as Type II equity i.e % capital charge Real Estate: 25% capital charge 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% % 8.5% 10.5% 20.0% 35.0% 58.5% 58.5% 23.0% 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 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%

12 Mandatum Life - Solvency II SCR (Market Risk)* Asset Allocation EUR 6,710 million 30 June 2015 Market Risk SCR (diversified) EUR 1,406 million 30 June 2015 Private Equity / Alternative 693 EURm 10 % Real Estate 297 EURm 4 % Fixed Income 3970 EURm 59 % Property risk 42 EURm 3 % Spread risk 226 EURm 16 % Concentration risk 1 EURm Currency risk 0,1 % 50 EURm 4 % Equity risk 923 EURm 66 % Listed Equity 1750 EURm 26 % Interest rate risk 164 EURm 12 % *) Excl. Unit Linked Market Risk

13 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 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. 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Type 1 risk charge without Symmetric Adjustment

14 Solvency II and Mandatum Life Sampo Group, Capital Markets Day 11 September 2015