Fennia Asset Management Annual Report 2018

Report of the Board of Directors

Report of the board of directors

2018 marks the first full year of Fennia Asset Management’s operations under the current operating model, which saw the Group’s investment unit merged with the operations of Fennia Asset Management. The merger took place in spring 2017.

Fennia Mutual Insurance Company sold its 100% holding in the company to Fennia Mu-tual Insurance Company on 1 April 2018. At the same time, Fennia Asset Management became a wholly owned subsidiary of Fennia Mutual Insurance Company, which is the Group’s parent company.

On 23 April 2018, Fennia Asset Management established Fennia Property Development Ltd and owns 70 per cent of the subsidiary.

Business during the financial period

For Fennia Asset Management, 2018 was again a time of growing and diversifying the business. During the financial year, the company’s fee and commission income increased 43 per cent to EUR 7.4 million (EUR 5.2 million). The amount of client assets managed by the company grew 10 per cent and amounted to EUR 3.1 billion (EUR 2.9 billion), of which the Group’s internal assets accounted for EUR 2.5 billion.

The number of customers grew. The number of asset management portfolios and uni-tholders grew by roughly 21 per cent. New capital is mainly allocated to the Kassa and Kassa Plus model portfolios, full-mandate asset management, and the Fennica Properties I and Fennica Building Plots funds. The low interest rate level and expensive equity mar-ket continued to steer investors’ interest towards alternative investment forms, such as real estate investment.

It was a challenging year for the capital markets. Early in the year, share prices mainly rose, but they fell strongly in all markets, especially in the fourth quarter. When looking at return histories spanning more than 100 years, 2018 will go down in history as a year when a record number of all fixed income classes and equity markets generated losses.

The annual returns in euros on the equity markets can be summed up as follows: Global MSCI World index fell 4.9 %, US rose 0.4 % (S&P 500), Europe fell 10.8 % (Stoxx 600) and emerging markets fell 10.3 % (MSCI EM).

The returns on the portfolios managed by Fennia Asset Management varied between -0.2 % (Kassa) and -8.9 % (Equity). The portfolios nevertheless performed better than their benchmark indices. The biggest reason for this was the decision made in spring 2018 to underweight equities, as well as the overweighting of dollar-denominated investments. Early in the year we reduced the weight of emerging market bonds in fixed income invest-ments, and during the year we raised the relative weight of short-term corporate bonds.

The same themes that led to weak returns in the capital markets in 2018 are the themes for the start of 2019. The markets are still nervous over the US–China trade war and the im-pacts of an uncontrolled Brexit on global economic growth and companies’ earnings. Achieving sustainable growth calls for solutions to major political disputes that are satisfac-tory from the markets’ perspective.

For the special investment fund Fennica Properties I, 2018 was an active year in terms of both transactions and leasing. The fund continued to grow, acquiring five properties that are in line with its investment strategy and succeeding well in leasing operations. 2018 marked the first full year of operations for the special investment fund Fennica Building Plots. The fund has been moving forward in line with its chosen strategy, and it enjoys a high investment rate of 92.2 per cent. Investors have shown a good level of interest in both funds, and the goal for 2019 is to continue growing the funds by making investments in line with their strategies.

Company’s result and solvency

The company’s result improved from the comparison year. The profit for the financial year, before taxes, was EUR 1.5 million, and after taxes EUR 1.3 million (EUR 1.0 million).

The company’s capital and reserves grew, and at the end of the financial year stood at EUR 4.4 million (EUR 3.1 million).

The Group’s solvency at the end of the financial period was good. The capital adequacy ratio was 22.3 per cent and, in solvency calculation, the company’s own funds amounted to EUR 4.1 million (the minimum requirement for own funds is EUR 1.5 million).

Key figures illustrating financial performance 





Return on equity (ROE)





Return on total assets (ROA)





Equity ratio





Cost/income ratio






Capital adequacy calculation key items

Solvency (EUR 1,000)




Common Equity Tier 1  (CET1) before deductions:




Deductions from Common Equity Tier 1





Intangible assets





Board's proposal for the disposal of profit




Common Equity Tier 1  (CET1)




Additional Tier 1  (AT1)




Tier 1  (T1 = CET1 + AT1)




Tier 2  (T2)




Total capital (TC=T1 + T2)




Own funds based on fixed overheads multiplied by 12.5




Common Equity Tier 1  (CET1)/amount of total risk (%)

22.3 %

24.2 %

35.7 %

Tier 1 (T1)/amount of total risk (%)

22.3 %

24.2 %

35.7 %

Total capital (TC)/amount of total risk (%)

22.3 %

24.2 %

35.7 %

Capital adequacy ratio

22.3 %

24.2 %

35.7 %

Minimum capital




Minimum requirement for own funds





Corporate Governance

During the financial year, Fennia Mutual Insurance Company’s Managing Director Antti Kuljukka acted as the Chairman of Fennia Asset Management’s Board of Directors. The members of the Board of Directors were Elli Dahl, Juha-Pekka Kallunki, Alexander Schoschkoff and Seppo Rinta; Elli Dahl and Juha-Pekka Kallunki were elected by the uni-tholders of the special investment funds managed by the company. Seppo Rinta resigned from the Board of Directors on 18 September 2018, after leaving Fennia’s service. Eero Eriksson served as Fennia Asset Management’s Managing Director during the reporting year.

The Board of Directors held a total of 8 meetings, one of which was an email meeting. The attendance rate of the members was 97 per cent.

Timo Rantala, Director of Fennia Asset Management’s Real Estate business, served as the Chairman of subsidiary Fennia Property Development’s Board of Directors. The Board members were Fennia Asset Management’s Legal and Administration Director Heidi Keto-lainen, and Martti Reijonen and Jussi Perho. Aarne Markkula served as Fennia Property Development’s Managing Director throughout the financial year.

During the reporting year, the Board of Directors of Fennia Property Development held a total of 6 meetings, all of which were physical meetings. The attendance rate of the mem-bers was 100 per cent.

The auditor chosen by Fennia Asset Management and the company of the special invest-ment funds under its management was APA Petri Kettunen, with auditing firm KPMG OY Ab as the deputy auditor. The auditor, appointed by the unitholders of the special invest-ment fund Fennica Properties I, for the company and the special investment funds is Dan-iel Haglund, authorised public accountant (HT), and the deputy auditor is the auditing firm KPMG OY Ab.

The company employed an average of 35 people during the financial period.

Policy on disclosures and frequency of disclosure adopted in the context of the preparation of the Report of the Board of Directors

Fennia Asset Management generally discloses all information that falls within the scope of the disclosure obligation pursuant to the regulation on prudential requirements (EU No 575/2013). The company has decided not to disclose certain non-material information, as permitted by a derogation included in the regulation. The omission of this non-material in-formation does not influence the decision of a user relying on that information for the pur-pose of making economic decisions. In Fennia Asset Management’s estimate, the dis-closed information thus provides the market parties with a comprehensive understanding of the company’s risk profile, regardless of the application of the derogation concerning information to be disclosed.

Fennia Asset Management discloses the information listed in Title II of the prudential regu-lation as required by the regulation at least once a year. The information is disclosed in the Report of the Board of Directors, which is drawn up as part of the annual financial state-ments.

Compliance officer’s assessment of the information to be disclosed:

The compliance officer on 16 January 2019 reviewed the draft of the Report of the Board of Directors drawn up by the company’s Managing Director for the financial year as per 31 December 2018, as well as the policy on disclosures and frequency of disclosure adopted in the context of the preparation of the Report of the Board of Directors. According to the compliance officer’s assessment, both the Report of the Board of Directors and the above-mentioned policy are in compliance with the applicable regulations and the company’s internal policies. The compliance officer therefore proposes no changes to the Report of the Board of Directors or to the policy on disclosures and frequency of disclosure.

Risk management


As Fennia Asset Management is part of the Fennia Group, Fennia Asset Management’s internal control and risk management framework is described partly in the common policy documents of the Fennia Group and partly in the separate Board-approved policy docu-ments of the company.

At Fennia Asset Management, risk management means strategies, processes, principles and measures to identify, measure, manage, monitor, provide notification of and report risks the company is exposed to. The objective of risk management is to continuously se-cure the company’s solvency and liquidity. Efforts to meet the objective include supporting the achievement of the objectives set out in the strategy and action plan, and ensuring that the risks taken by the company are in proportion to its risk-bearing capacity.

Fennia Asset Management’s risks are managed through careful planning and implemen-tation of the business strategy, and through a risk management process that takes the special characteristics of each risk into account and consists of regular and continuous measures. Operational risk charting is carried out at least once a year, and a risk and sol-vency assessment report (hereinafter ICAAP report) is drawn up.

The company’s governance system supports the achievement of the risk management ob-jectives.

Risk management organisation

Fennia Asset Management’s Board of Directors is responsible for ensuring the appropri-ateness of the company’s internal control and risk management. Its duty is to ensure that the company complies with both its own risk management principles and the applicable Fennia Group risk management principles. The Managing Director of Fennia Asset Man-agement is responsible for the practical implementation of risk management in accordance with the Board’s decisions.

Fennia Asset Management has an extended management team that convenes to prepare, guide, coordinate and provide information on tasks related to risk management and gov-ernance. The extended management team is chaired by the company’s Managing Director and its members are the persons responsible for the company’s business functions, ad-ministration, legal affairs, risk management and compliance.

The company’s risk management system is based on a three-defence-line model, where-by:

  1. The first defence line, i.e. business and support functions, has the primary responsibility for daily risk management and notification of risks in accordance with the agreed policy.
  2. The second defence line, i.e. the risk management function and the compliance func-tion, is responsible for, among other things, planning, developing and reporting on risk and solvency management, and supports, monitors and assesses the first de-fence line’s implementation of the risk and solvency management tasks.
  3. The third defence line, i.e. the internal audit, is in charge of ensuring the effectiveness and efficiency of internal control and risk management.

In Fennia Asset Management’s Board of Directors has concluded that the tasks of the second and third defence lines can be arranged efficiently and effectively without a sepa-rate risk management function, compliance function or internal audit. During the reporting year, the compliance services were partly acquired from the parent company and partly from Fennia Group’s external service provider, but as of 1 November 2018, they are ac-quired exclusively from the parent company. The risk management function and internal audit services have been outsourced to the Group’s parent company.

Risk management within the Fennia Group has been divided organisationally into the Risk Management unit and the Compliance and Operational Risks unit, both of which are headed by the Group’s Chief Financial Officer as part of the Group’s finance and govern-ance. The internal audit functions autonomously and reports directly to Fennia’s Board of Directors. The Risk Management Unit, the Compliance and Operational risks unit and the Internal Audit are integrated in Fennia Group’s organisation in a way that ensures that they are free from influences that might compromise the objective, equal and independent performance of their tasks. The internal audit is independent of both the first and second defence line operations.

Distribution of responsibility in risk management

In the three-defence-line model, responsibility for risk management is distributed between various roles as follows:

  • Managing Director

The Managing Director bears overall responsibility for the appropriate implementa-tion of risk and solvency management in accordance with the Board of Directors’ decisions.

  • Business and support functions

Business and support functions are responsible for identifying risks, for daily risk-management measures and risk notifications, as well as for monitoring the func-tion’s risk profile and any measures that its changes would require, in accordance with the approved policies.

  • Risk management

The Risk Management unit and the Compliance & Operational Risks unit together form the risk management function and maintain an overall picture of the compa-ny’s risk profile. They assist the Board of Directors, the Managing Director and the business and support functions in developing and maintaining a strong risk man-agement system. They report on risks to the company management and support the risk management work of the business and support functions by creating consistent procedures, and by providing guidance and training. Together they monitor the risk management work of the business and support functions and assess the sufficien-cy of this work. In the solvency management process, the task of the Risk Manage-ment unit is to monitor the appropriateness of the company’s solvency calculation and to participate in the drawing up of the ICAAP report. The authority and tasks of the risk management function have been defined in the policy approved by the Board of Directors.

  • Compliance

The compliance function, which belongs to the second defence line, is responsible for ensuring that operations comply with regulations, financial sector self-regulation and the Fennia Group’s internal guidelines, and that customer relationships are managed according to the appropriate procedures. It also identifies and assesses the impacts of regulatory changes and the risks related to regulatory non-compliance, as well as the sufficiency of measures taken to prevent and rectify pos-sible shortcomings in regulatory compliance. In addition, the compliance function promotes compliance by providing proactive advice and develops internal proce-dures with which compliance can be monitored effectively and appropriately.

  • Internal audit

The internal audit supports the Fennia Group in achieving its goals by offering a systematic approach to the assessment and development of the efficiency of the or-ganisation’s risk management, control and leadership and administrative processes. The task of the internal audit is to monitor and assess the sufficiency and efficiency of the Group’s internal control and other administration.

Risk management process and risk areas

Risk refers to an uncertain event and its consequence, which can be a threat or an oppor-tunity for the company.

Fennia Asset Management’s risk management process consists of the following:

  • Risk identification

The first defence line, the owner of the risks, identifies and assesses the risks that threaten the operations and the objectives in separate risk charting and in daily op-erational activities.

  • Risk measurement

During the risk management process, the severity of the risks and their interde-pendencies are evaluated. The objective is to create consistent indicators for differ-ent risks and thereby improve their comparability. Risk measurement and compari-son can help target risk management measures on the risks that are most relevant to the operations. The risk management function of the second defence line co-ordinates the measurement of risk severity and dependency as well as the methods used in measurement.

  • Risk management

During the management process, the risks are prioritised, and management measures to monitor and limit the risks are planned. The first defence line plans and implements appropriate risk management measures. The second defence line sup-ports, monitors and assesses the risk management work of the first defence line; however, in order to ensure independence, it does not participate in making opera-tional decisions.

  • Risk monitoring

Risk monitoring in the company consists of monitoring, assessing and testing the management measures that have been planned and decided on. The first defence line ensures that risks are monitored appropriately and that sufficient information on risks is obtained in order to manage them. The first defence line monitors the man-agement measures that it has planned and decided on and assesses their effec-tiveness. The second defence line conducts independent risk monitoring.

  • Risk reporting

The first defence line provides notifications, both within the defence line and to the third defence line, of realised risks and the impacts thereof, in accordance with the agreed process. The second defence line regularly reports on the risks to the Board of Directors.

Most significant future risks and uncertainties

The risk management process described above is applied to all risks that the company’s operations are exposed to. The most significant risks related to the company’s operations are the operational risk, concentration risk, strategic risk and reputation risk.

Operational risks relate to the company’s processes, personnel and systems. They are managed by means of continuous development, guidance and training.

Concentration risk may arise if there is strong dependence on a single product or if the assets under management are made up of the contracts of a relatively small number of customers. The objective is to manage risks primarily through business planning and sales strategies.

The company’s material strategic risks relate to not implementing the business strategy, which can potentially lead to, in terms of solvency, a poor cost-income ratio and capital deficit. The company’s business can, however, quite flexibly adapt to changing conditions. The business strategy is assessed at regular intervals, taking into account changes in the operating environment and, if necessary, it can be redirected.

Reputation risk refers to a risk of damage to the company’s public image. Reputation risk is usually a consequence of other materialised risks, such as the materialisation of operational risks.

Fennia Asset Management is also exposed to other risks, such as liability risks, liquidity risk, counterparty risk, market risks and group risks, for which the company has its own means of risk management.

Declaration on the adequacy of risk management arrangements

Fennia Asset Management’s Board of Directors estimates that the risk management sys-tems that are in place are sufficient with respect to the company’s profile and strategy.

Corporate Governance

The Board of Directors of Fennia Asset Management has approved a document concerning the arrangement of the company’s governance, describing the tasks of the Board, as well as the authorisations, responsibilities, reporting relationships, and deputy arrangements of the Managing Director, the directors of key businesses and other personnel. Fennia Asset Management’s governance system consists of the company’s Board of Directors, acting management, management group and the outsourced functions, i.e. financial administration, IT management, risk management, compliance and internal audit, as well as external audit. In order to ensure appropriate and efficient governance, the nature, scale and complexity of the company’s operations have been taken into account in its organisation.

The Board members must have various strengths, professional competence and experience. Fennia Asset Management’s Board of Directors has set the long-term goal of promoting diversity and gender equality in the composition of its Board. By preparing and planning the search for Board candidates for the long term, the Board seeks to ensure that the competence and experience required by the company at any given time, as well as equal representation of genders on the Board, are achieved and maintained.

Fennia Asset Management complies with its own guidance on the organisation of governance in all of its operations. The guidance is based on regulations, guidelines and standards that are included in the Finnish Financial Supervisory Authority’s Regulations and Guidelines. The Finnish Financial Supervisory Authority’s Regulations and Guidelines are publicly available at: http://www.finanssivalvonta.fi/fi/Saantely/Maarayskokoelma/Uusi/Pages/paajaksoittain.aspx.


Remuneration at Fennia Asset Management complies with the company’s guideline on its remuneration scheme which is in line with regulations (Act on Credit Institutions 610/2014 and FIN-FSA regulations and guidelines 18/2013 on remuneration policies and practices) and which classifies personnel into risk categories on the basis of their duties and position. Remuneration comprises a fixed pay component and variable pay component. The fixed salary corresponds with the competence level required, experience and position in accordance with the Hay job evaluation method. Depending on the job, the variable pay component consists of an annual bonus or a sales commission/finder’s fee, which may, on an individual level, be more than the threshold limit of EUR 50,000 set by the Finnish Financial Supervisory Authority, in which case this is justified by an additional document that supplements the remuneration scheme policy, in accordance with the guidelines specified in the policy in question. In 2018, fixed remuneration amounted to EUR 2,921,021 (EUR 2,070,611), and variable remuneration (incl. Asset Management remuneration paid within Fennia Life) totalled EUR 555,673 (EUR 259,237), paid to 56 (51) people. Variable remuneration complied with the set maximum and proportional limits, and there were no deferred variable pay components.

Group Structure

Fennia Asset Management owns 70 per cent of Fennia Property Development Ltd, which was established on 23 April 2018. Fennia Asset Management Ltd. has not prepared consolidated financial statements. Consolidating Fennia Property Development is not necessary to give a correct and sufficient picture of the Group’s operating result and financial position. Fennia Property Development and Fennia Asset Management are included in parent company Fennia Mutual Insurance Company’s consolidated financial statements.

Outlook for the current year

Demand for alternative investment products continues. However, this is no longer due solely to the low return expectations for fixed income and equity investments, but also to investors’ aim of reducing the previously larger risk of depreciation related to listed investments. The focus of business growth chosen by the company for real estate investment products is thus still relevant.

However, as uncertainty in the investment markets has substantially increased, investors will be much more active than before in terms of the timing and allocation of their investments. This has been accounted for in product development launched in the previous financial period, and in improving the scalability of governance.

Sustainability and a commitment to responsible operations will be increasingly highlighted in investors’ choices.

Board of Directors’ proposal on the disposal of profit

The company’s profit for the financial year was EUR 1,322,315.65. The Board of Directors proposes to the annual general meeting that the profit be used such that EUR 300,000.00 be paid in dividends and EUR 1,022,315.65 be transferred to retained earnings.

Significant events after the financial period

There are no significant events to report after the financial period ended.

Share capital and shares

The company’s share capital at the end of the financial year was EUR 125,000, and the company had 10,000 shares, all of which are of the same series.