Report of the Board of Directors
Fennia Life Insurance Company’s premiums written continued their strong growth during 2015. The company carried on its preparations for the Solvency II framework requirements that entered into force at the beginning of 2016 and the implemented measured affected the company’s investment operations in particular.
Fennia Life is a wholly owned subsidiary of Fennia Mutual Insurance Company.
Fennia Life’s total premium income including the reinsurers’ share rose by 31 per cent and the strong growth for the second consecutive year led to the company’s highest-ever premium income at EUR 199.8 million (EUR 152.5 million). Of the company’s total premiums written, life insurance accounted for EUR 165.4 million (EUR 124.6 million) and pension insurance for EUR 34.4 million (EUR 27.9 million). The premiums written for pension insurance taken out by companies continued to grow despite the decline in the premiums written for private pension insurance policies. On 1 February 2015, a group pension insurance portfolio transferred to Fennia Life from Nordea Life Insurance Finland and the savings and premium income of the transferred portfolio strengthened Fennia Life’s position as a provider of companies’ pension insurance. Premiums written on unit-linked insurances increased dramatically to EUR 158.3 million (EUR 109.8 million), accounting for 79 per cent (72%) of the company’s total premiums written. Premiums written on regular premium contracts stood at EUR 52.9 million (EUR 47.6 million), accounting for 26 per cent (31%) of total premiums written.
Claims paid rose to EUR 83.2 million (EUR 77.5 million). There were slightly more surrenders than in the comparison year and they accounted for EUR 30.6 million (EUR 27.7 million) of claims paid. The repayment of benefits amounted to EUR 3.4 million (EUR 7.4 million). Pensions were paid in the amount of EUR 33.7 million (EUR 32.2 million) and death and disability benefits in the amount of EUR 11.5 million (EUR 5.4 million).
Operating expenses increased to EUR 13.5 million (EUR 11.9 million). The increase in operating expenses has resulted from a growth in the volume of business and investments made in it. The growth in investments also materialised as increased expense loading. Taking into consideration fee and commission income from funds which form the investments of the unit-linked insurance, the expense ratio was 100.8 per cent (108.8 per cent).
The total return on with-profit insurance savings varied between 2.4 and 4.5 per cent in 2015, depending on the line of insurance and quarter of the year. Client bonuses granted totalled EUR 2.0 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 70.0 million (EUR 14.0 million) was transferred from the result to the technical provisions.
The company’s return on investments at current values amounted to EUR 34.7 million (EUR 49.6 million), i.e. 5.0 per cent (7.4%) on the invested capital. The company’s net investment income was EUR 122.1 million (EUR 64.9 million), of which unit-linked insurances accounted for EUR 46.7 million (EUR 34.9 million). The risk level of the investment portfolio was reduced over the course of the year and due to the successful timing of realisations the investment result includes an exceptionally large amount of capital gains.
At year-end, the current value of investments stood at EUR 749 million (EUR 721 million). Bonds and long-term fund investments accounted for 39 per cent of the investment portfolio, and money market investments and deposits for 20 per cent. Shares, equity fund investments and capital trusts accounted for 18 per cent, real estate investments for 22 per cent, and loan receivables and other investments for 1 per cent. Assets covering unit-linked insurances grew strongly to EUR 723 million (EUR 511 million).
The company’s operating profit was EUR 3.0 million (EUR 10.2 million). The Group’s operating profit was EUR 2.6 million (EUR 8.1 million).
The company’s solvency margin was EUR 114.1 million (EUR 152.0 million). The company’s equalisation provision of EUR 8.6 was withdrawn. The company’s solvency capital was EUR 114.1 million (EUR 160.6 million). The solvency in relation to technical provisions decreased primarily due to the increase in the technical provisions, and the solvency ratio fell to 14.0 per cent (23.4%).
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; CEO Juha-Pekka Halmeenmäki (as of 1 Sep. 2015) 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 96 per cent.
Seppo Rinta acted as Managing Director.
The company employed an average of 54 people (50) in 2015.
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 13 real estate companies wholly owned by the company.
Fennia Asset Management’s profitability improved during 2015. The Group’s profit for the financial year was EUR 253,789.50 (EUR -7,214.19). The company’s capital and reserves at the end of the financial period were EUR 1.4 million (EUR 1.1 million).
The Group’s solvency at the end of the financial period was good, the solvency ratio was 24.29% and the company’s own funds amounted to EUR 1.3 million (calculated minimum requirement for own funds is EUR 0.4 million).
The amount of client assets managed by Fennia Asset Management grew, standing at EUR 234 million (EUR 193 million) at year-end. The new capital was mainly allocated to a fund investing in business premises because the current low interest rate level and volatile equity market steered investors’ focus towards real estate investments.
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 Fennia Life’s most significant risks and general principles concerning risks and solvency management.
The uncertainty on the investment markets will continue and will make it challenging to meet the return requirement on high guaranteed-return insurance portfolios. The company does not consider the market environment to be attractive with regard to risk-taking, instead it is heading forward fully informed of risks while simultaneously securing its solvency position.
The digitalisation of service models, the changing of the structures of social welfare, health care and social security, together with the lengthening of the pension entitlement period and increase in wealth, create excellent opportunities for active and flexible institutions like Fennia Life to improve the financial security of, in particular, self-employed persons, their families and their companies’ personnel, together with the solutions offered by asset management and non-life insurance.