SAPPI LIMITED

changes in membership reduced liabilities by US$ 9 million. Currency effects increased liabilities in US$
terms by US$ 5 million.
Defined benefit schemes remain open to members, with notable exceptions being Austria and the
UK. Schemes in southern Africa and one in North America are in a closed phase where the active
membership is a closed Group that will gradually reduce over time.
For further information see note 27 in our Group Annual Financial Statements included elsewhere in
this Annual Report.
Insurance
The Group has an active program of risk management in each of its geographical operating regions
to address and to reduce exposure to property damage and business interruption. All production and
distribution units are subjected to regular risk assessments, the results of which receive the attention of
senior management. The risk assessment and mitigation programs are coordinated at Group level in
order to achieve a harmonization of methodology and standardization of approach.
Sappi follows a practice of insuring its assets against unavoidable loss arising from catastrophic
events. These events include fire, flood, explosion, earthquake and machinery breakdown. Our
insurance also covers the business interruption costs which may result from such events. Specific
environmental risks are also insured. In line with previous years, the Board decided not to take separate
cover for losses from acts of terrorism, which is consistent with current practice in the paper
manufacturing industry. This insurance cover excludes insurance for our plantations, which is placed
separately.
Sappi has a global insurance structure and the bulk of its insurance is placed with its own captive
insurance company, Sappisure Försäkrings AB, domiciled in Stockholm, Sweden, which re-insures
most of the risks in the insurance market.
Sappi has successfully negotiated the renewal of its 2011 insurance cover at more favorable rates to
those of 2010. Self-insured retention for any one property damage occurrence has remained at
US$ 25 million, with an unchanged annual aggregate of US$ 40 million. For property damage and
business interruption insurance, cost-effective cover to full value is not readily available. However, we
believe that the loss limit cover of US$ 1 billion should be adequate for what we have determined as the
reasonably foreseeable loss for any single claim. From fiscal 2011 our property damage insurance
policy will be euro denominated as most of our assets are based in euro denominated jurisdictions.
Insurance cover for credit risks currently applies on a regional basis to Sappi’s Northern American,
European and South African domestic trade receivables subject to a US$ 5 million Group aggregate first
loss.
Sappi has placed the insurance for its plantations on a stand-alone basis through Sappisure
Försäkrings AB into international insurance markets. Cover was purchased from May 1, 2010 to April 30,
2011.
Critical Accounting Policies and Estimates
Management of the Group makes estimates and assumptions concerning the future in applying its
accounting policies. The estimates may not equal the related actual results.
The Group believes that the following accounting policies are critical due to the degree of
management judgment and estimation required and/or the potential material impact they may have on
the Group’s financial position and performance.
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