Report of the Board of Directors
For Fennia Life Insurance Company 2014 was a positive year in a number of ways and the company’s result was good. The growth in premiums written and sales was record-high. The company’s solvency remained at a good level, despite the growth.
Fennia Life is a wholly owned subsidiary of Fennia Mutual Insurance Company.
Fennia Life’s premiums written increased by more than 60 per cent to EUR 152.5 million (EUR 94.5 million). According to preliminary information from the Federation of Finnish Financial Services, premiums written in the sector as a whole came to EUR 5.9 billion (EUR 5.4 billion). Measured by total premiums written, Fennia Life’s market position strengthened significantly. Of the company’s total premiums written, life insurance accounted for EUR 124.6 million (EUR 65.6 million) and pension insurance for EUR 27.9 million (EUR 28.8 million). The premiums written for pension insurance taken out by companies grew despite the decline in the premiums written for private pension insurance policies. Premiums written on unit-linked insurances increased to EUR 109.8 million (EUR 53.4 million), accounting for 72 per cent (57%) of the company’s total premiums written. Premiums written on regular premium contracts stood at EUR 47.6 million (EUR 47.4 million), accounting for 31 per cent (50%) of total premiums written.
Claims paid decreased to EUR 77.5 million (EUR 84.2 million). There were fewer surrenders than in the comparison year and they accounted for EUR 27.7 million (EUR 31.4 million) of claims paid. The repayment of benefits amounted to EUR 7.4 million (EUR 9.8 million). Pensions were paid in the amount of EUR 32.2 million (EUR 31.8 million) and death and disability benefits in the amount of EUR 5.4 million (EUR 6.5 million).
Operating expenses increased to EUR 11.9 million (EUR 10.6 million). Close to half of the increase in operating expenses resulted from the growth in the business volume and investments made therein, and other increases in expenses resulted mainly from expected growth in expenses and depreciations related to information systems, including preparations for the Solvency II framework. Taking into consideration fee and commission income from funds which form the investments of the unit-linked insurance, the expense ratio would have been 108.8 per cent (105.6 per cent).
The total return on with-profit insurance savings varied between 2.4 and 4.5 per cent in 2014, depending on the line of insurance and quarter of the year. Client bonuses granted totalled EUR 1.5 million, of which EUR 0.4 million was funded from provisions for bonuses reserved earlier. The company continued to increase the technical provisions, which will help prepare for the costs of the technical interest rate that will be credited to life insurance. An interest rate supplement of EUR 14.0 million (EUR 18.0 million) was transferred from the result to the technical provisions.
The company’s return on investments at current values amounted to EUR 49.6 million (EUR 32.6 million), i.e. 7.4 per cent (5.2%) of the invested capital. The company’s net investment income was EUR 64.9 million (EUR 86.6 million), of which unit-linked insurances accounted for EUR 34.9 million (EUR 53.7 million).
At year-end, the value of investments stood at EUR 721 million (EUR 693 million). Bonds and long-term fund investments accounted for 41 per cent of the investment portfolio, and money market investments and deposits for 10 per cent. Shares, equity fund investments and capital trusts accounted for 26 per cent, real estate investments for 22 per cent, and loan receivables and other investments for 1 per cent. In addition, the Group had EUR 511 million (EUR 398 million) in assets covering unit-linked insurances.
|Equities and holdings||25.6%|
|Investments in land and buildings||21.6%|
|Other money market instruments||10.4%|
The company’s overall result rose to EUR 29.7 million (EUR 0.9 million) and operating profit was EUR 10.2 million (EUR 1.1 million). The Group’s operating profit was EUR 8.1 million (EUR 1.9 million).
The company’s solvency margin increased to EUR 152.0 million (EUR 129.0 million) and solvency capital to EUR 160.6 million (EUR 136.8 million). The solvency ratio was 23.4 per cent (21.0%), i.e. at a good level.
During the year under review, the members of Fennia Life’s Board of Directors were: Managing Director Mikael Ahlbäck (Chairman); Matti Ruohonen (Vice Chairman); Managing Director Antti Kuljukka; Director Antti Niemelä until 18 November 2014 and Deputy Managing Director Eero Eriksson.
The Board of Directors held a total of 11 meetings during the year under review. The attendance rate of the members was 89 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.
Seppo Rinta acted as Managing Director.
The company employed an average of 50 people (50) in 2014.
The starting point for remuneration at Fennia Group and thus also at Fennia Life 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 the Group companies. Fennia Life’s remuneration schemes are based on achieving pre-defined targets that are derived from the company’s strategic targets. Fennia Group’s pay policy defines the principles related to salary and rewards. At Fennia, the pay policy is 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 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.
Fennia Asset Management Ltd, in which the company has a 100 per cent holding, is included in the consolidated accounts.
In addition, at year-end, Fennia Life Group included 14 real estate companies wholly-owned by the company.
Fennia Asset Management’s profitability improved markedly during 2014. However, the company recorded a loss of EUR -7.214.19 for the financial year (-1.0 million). The parent company strengthened the company’s capital by EUR 0.8 million at the start of the financial period. The company’s capital and reserves at the end of the financial period was EUR 1.1 million.
For Fennia Asset Management, 2014 was again a time of developing the business. The improvement in the company’s result was affected significantly by the fees gained from the management of the Fennica Properties I real estate fund, launched alongside the Customer Asset Management function. The amount of client assets managed by Fennia Asset Management equalled EUR 193 million at the end of the year.
The risk management and solvency management principles that are approved by the Boards of Directors of Fennia Group companies serve as the foundation for Fennia Life’s risk management. The steering of the risk management system is based on a three-defence-line model, which is described in more detail in the note 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 plan approved by the Board of Directors, which determines, among other things, the allocation of investments and the rights and responsibilities of those involved in investment activities. The company’s risk-bearing capacity is taken into account in determining the allocation of investments.
A Note to the Financial Statements concerning risks and the management of risks and solvency has been drawn up, detailing the Fennia Life’s most significant risks and general principles concerning risks and solvency management.
The first half of the year for Fennia Life will be defined, in terms of operations, by the taking over of the close to one thousand group pension client portfolios transferred from Nordea Life Insurance Finland on 1 February 2015. The management of the close to five thousand insured has begun smoothly. The portfolio transfer strengthens the company’s position as an expert manager of companies’ pension insurance. The company’s reinsurance partner was switched from the RETRO Life Insurance Company, which is ending its operations, to Hannover Rück SE, which operates out of Stockholm.
The element of uncertainty present in Europe and globally, as well as the negative outlook for Finnish entrepreneurs and SMEs cast a shadow over the company’s outlook. Although the majority of the company’s premiums written result from asset-management based investment insurances, the importance of pure risk insurance and the pension insurance policies taken out by companies continues to be great according to the company’s strategy.
We consider it likely that uncertainty will increase on the investment markets during 2015. Equities and other asset classes have risen almost without interruption since 2009, which means that the securities markets’ cycle has already reached a fairly mature phase. Market fluctuations are enhanced also by the out-of-sync economic cycles of the European and the North American economic areas. Europe is fighting deflation and slow economic growth with government bond purchases, while the United States is already beginning to tighten its interest rates due to a clearly stronger economic situation. Another factor increasing uncertainty is the fate of Greece in the eurozone and the possible impacts of the Ukraine conflict on the rest of Europe. Despite increasing volatility, the return on equities and corporate bonds may turn out to be moderate during 2015.
The return on Fennia Life’s investment activities will be affected by the transfer to the Solvency II framework during 2015. Retaining the current risk level of investments will probably be unfeasible and this will also reduce return expectations on investment operations.