Fennia Annual Report 2014

Report of the Board of Directors

Report of the board of directors

2014 was a good year for Fennia Mutual Insurance Company. Resulting from the decrease in claims incurred, the company’s combined ratio declined. The company’s investment result was good and thus both the company’s result and solvency developed favourably.

Insurance business

Premiums written for non-life insurance increased to EUR 430 million (EUR 403 million). Premiums written for direct insurance increased 7 per cent to EUR 429.6 million (EUR 402.5 million), and premiums written for reinsurance assumed stood at EUR 0.4 million (EUR 0.5 million). Credit losses amounted to EUR 1.8 million (EUR 1.6 million).

Claims incurred during the financial year include EUR 17 million in non-recurring growth in technical provisions for patient insurance. This, in turn, increased the premiums written for fully experience-rated public sector insurance to EUR 16 million. The changes in the calculation bases for technical provisions at the end of the comparison year both increased and decreased the claims incurred for the year of comparison, but the changes in the calculation bases for technical provisions did not have an effect on the company-level loss ratio and the combined ratio. In contrast, the effect on line-specific loss ratios was significant and, for this reason, the line-specific loss ratios presented in the Report of the Board of Directors do not include the effect of the changes in the calculation bases.

The company’s loss ratio declined to 75.5 per cent (80.1%). The decline resulted from the profitability measures implemented by the company in addition to an otherwise low loss year. Operating expenses grew to EUR 99 million (EUR 95 million). The company recorded EUR 1.9 million in information system investment write-offs in its Financial Statements. The expense ratio was 23.8 per cent (24.3%). The company’s combined ratio declined and was 99.3 per cent (104.4%), with claims accounting for 68.0 per cent (72.2%) and operating expenses and claims handling expenses for 31.2 per cent (32.2%).

Premiums written for statutory accident insurance (workers’ compensation) fell 5 per cent to EUR 89 million (EUR 93 million). As a result, the loss ratio for the insurance line improved to 85 per cent (89%). Premiums written for other accident and health insurance increased by 8 per cent to EUR 40 million (EUR 36 million). The investment line’s loss ratio declined considerably to 92 per cent (116%) but remains unsatisfactory. The result was impacted by systematic pricing that targets a level corresponding to the risk.

Premiums written on traffic insurance was EUR 78 million (EUR 75 million). The profitability of the line was close to the previous year’s level. The loss ratio was 68 per cent (66%). Premiums written for voluntary motor vehicle insurance increased 7 per cent to EUR 71 million (EUR 66 million). The loss ratio for the line weakened somewhat and was 75 per cent (70%). The annually varying winter conditions affect the fluctuations in the line’s loss ratio.

Premiums written for fire and other property insurance for companies remained at the previous year’s level at EUR 47 million. Premiums written for home insurance, including liability and legal components increased 7 per cent to EUR 47 million. The result for the corporate sector took a clearly positive turn and was satisfactory during the year under review.


The company’s return on investments at current values amounted to EUR 89 million (EUR 65 million), i.e. 6.2 per cent (5.2%) of the invested capital. The company’s net income from investments was EUR 84 million (EUR 54 million).

At year-end, the value of Fennia’s investments stood at EUR 1.496 million (EUR 1.383 million). Bonds and long-term fund investments accounted for 44 per cent of the investment portfolio, and money market investments and deposits for 7 per cent. Shares, equity fund investments and private equity funds accounted for 22 per cent, real estate investments for 24 per cent and other investments for 3 per cent.

Fennia, parent company investment portfolio 31.12.2014 EUR 1.496 million (EUR 1.383 million)

Return on investments 6.2% (5.2%)
Equities and holdings21.9%23,5%9,1%14,4%
Investments in land and buildings23.7%24,6%9,0%9,2%
Other money market instruments7.3%10,4%2,9%0,8%
Other investments3.2%3.9%1.6%4.6%

Result and solvency

Fennia’s operating profit was EUR 74 million (EUR 24 million). The technical underwriting result developed favourably and the investment result was good.

The company’s equalisation provision grew by EUR 44 million and stood at EUR 224 million (EUR 181 million) at year-end. The company’s solvency margin increased to EUR 335 million (EUR 310 million), and solvency capital to EUR 559 million (EUR 491 million). The solvency ratio, i.e. the solvency ratio in relation to the premiums earned stood at 133.8 per cent (125.9%).

Administration and staff

During the year under review, the members of Fennia’s Board of Directors were Mikael Ahlbäck (Chairman); Matti Pörhö (Vice Chairman); Jussi Järventaus, Managing Director; Lars Koski, Managing Director; Eva Liljeblom, Professor; Timo Salli, Managing Director; and Paul Stucki, Managing Director.

The Board of Directors held a total of 9 meetings during the year under review. The attendance rate of the members was 94 per cent.

The Boards of Directors of Fennia and Fennia Life decided in their meetings on 15 December 2014 to establish a joint Audit Committee for Fennia’s and Fennia Life’s Boards and appointed Eva Liljeblom as its Chairman and Matti Ruohonen and Paul Stucki as its members.

Antti Kuljukka acted as Managing Director.

No new members were elected to the Supervisory Board at the Annual General Meeting in spring 2014.

The company employed an average of 1.077 people (1.067) in 2014.


The starting point for remuneration at the Fennia Group is to provide encouraging, fair, and reasonable remuneration for management and personnel that is in line with the short- and long-term interests of both the Group and Group companies. Fennia’s remuneration schemes are based on achieving pre-defined targets that are derived from the Group’s strategic targets. In order to achieve this objective, remuneration principles (pay policy) have been drawn up for the Group. Fennia Group’s pay policy defines all of the principles related to salary and rewards for Fennia employees. At Fennia, the pay policy is viewed as a whole that is influenced not only by an interesting and sufficiently challenging field of tasks, but also by good leadership, personnel benefits and monetary rewards. The pay policy also defines how each Fennia employee can influence the development of their salary by developing themselves and their work, as well as the responsibilities related to salary and rewards within the company.

In line with the pay policy, rewards have been built in such a way as to prevent unhealthy risk-taking. Fennia’s remuneration schemes include, among other things, pre-defined maximum amounts of remuneration and a force majeure clause, which gives the Board of Directors the right to amend the schemes during the period if the company’s financial position is jeopardised or if the circumstances have otherwise changed considerably. Remuneration decisions are made according to the “one above” principle; i.e. the person making the decision is the supervisor of the supervisor of the employee in question.

Group Structure

The Consolidated Financial Statements of the Fennia Mutual Insurance Company include Fennia Life Insurance Company, in which the Company has a 100 per cent holding, on the basis of the sub-group financial statements.

eFennia was consolidated to the Consolidated Financial Statements. Fennia owns 20 per cent of the company and holds 63.6 per cent of the voting rights. The Consolidated Financial Statements also include Finnish Loss Survey up until the moment of sale of its entire share portfolio (100 per cent) on 31 December 2014.The Group also includes Fennia Asset Management Ltd, which is wholly owned by Fennia Life.

At the end of 2014, the Group also included 28 real estate companies, 14 of which belonged to the Fennia Life sub-group. The associated undertaking Uudenmaan Pääomarahasto Oy was also consolidated to the Group.

Consolidated Financial Statements

The result of the Group’s life insurance business was good. Fennia Life’s total result rose to EUR 29.7 million (EUR 0.9 million). The total premiums written on life insurance grew to a record-high EUR 153 million (EUR 94 million). Claims paid came to EUR 78 million (EUR 84 million). Operating expenses for life insurance were EUR 12 million (EUR 10 million). The expense ratio (of expense loading) was 120.4 per cent (114.5 %).

Fennia Life continued to increase the technical provisions, which will help prepare for the costs brought by the technical interest rate that will be credited to life insurance. An interest rate supplement of EUR 14 million (EUR 18 million) was transferred from the result to the technical provisions.

For Fennia Asset Management, 2014 was again a time of developing the business. The profitability of the company improved markedly during the year, although the company’s result for the financial year was slightly negative. The amount of client assets managed by the company grew and equalled EUR 193 million at the end of the year.

The Group’s operating profit was EUR 82 million (EUR 24 million). Net investment income amounted to EUR 146 million (EUR 140 million), of which unit-linked insurances accounted for EUR 35 million (EUR 54 million). The Group’s valuation difference increased to EUR 216 million (EUR 189 million).

The Group’s non-restricted capital and reserves stood at EUR 255 million (EUR 228 million), The Group’s solvency capital grew to EUR 656 million (EUR 561 million).

Risk management and solvency management

The risk management and solvency management principles that are approved by the Boards of Directors of the Group companies serve as the foundation for the Fennia Group’s risk management and solvency management. In the Fennia Group, risk management means co-ordinated strategies, processes, principles and measures to identify, measure, monitor, manage and report risks faced by the Group and the Group companies. Solvency management, on the other hand, means strategies, processes, principles and measures to steer and determine the Group’s and the Group companies’ risk-bearing capacity, risk appetite, risk tolerance and restrictions of their essential risks.

The steering of the risk management system is based on a three-defence-line model, which is described in more detail in the section concerning risk management. A risk management committee has been set up for the Group’s insurance companies to prepare, steer and co-ordinate tasks related to risk and solvency management and to communicate information.

Investment activities are based on the investment plans approved by the Boards of Directors, which determine, among other things, the allocation of investments and the rights and responsibilities of those involved in investment activities. The companies’ risk-bearing capacity is taken into account in determining investment allocation.

A Note to the Financial Statements concerning risks and the management of risks and solvency has been drawn up, detailing the Fennia Group’s most significant risks and general principles concerning risks and solvency management.

Outlook for the current year

Economic growth in both Europe and Finland is likely to continue to be slow throughout the year under progress, although measures supporting economic growth have been implemented especially on the part of the European Central Bank. A low interest rate level and uncertainty in the political and economic environment make it difficult to achieve a return on investments that matches the set targets. The profitability of the core business will continue to be the main theme of the current year as a measure supporting solvency.

Nordea Life Insurance Finland’s group pension insurance portfolio transferred to Fennia Life on 1 February 2015. The insurance savings of the transferred group pension insurance portfolio come to around EUR 63 million, of which the majority is unit-linked.