Capital management

Capital management

Own funds

Objectives, policies and processes of managing own funds

The goal of managing own funds is to ensure the sufficiency of own funds to cover the regulatory solvency capital requirement and a sufficiently large surplus at all times, and to allocate capital to key risk areas efficiently in terms of risk-return ratio. The above-mentioned surplus is determined by the understanding of risk in relation to the regulatory solvency capital requirement and preparing for sudden and unexpected disturbances.

The required minimum level of own funds determines the minimum level of own funds with which the obligations concerning the benefits of the insured can be met with great probability. This amount of own funds is the higher of the following two solvency capital requirements:

  • solvency capital requirement required by solvency regulation
  • solvency capital requirement defined according to the own understanding of risk (ORSA).

Both own funds and solvency capital requirement can change quickly as a result of open risk positions, in which case it might no longer be possible to practice business in a normal manner. For these types of sudden and unpredictable stress factors, a desired amount of capital buffer is defined on top of the required minimum amount of own funds. The purpose of capital buffers is to create time to adjust the risk position when sudden and unforeseen situations are realised, i.e. to modify the risk/return position and solvency position with careful consideration to a level that corresponds to the new operating situation.

The required amount of capital buffer is also assessed in the long term, in which case the assessment also includes qualitative perspectives and unmeasurable risks. These include, for example, risks and opportunities related to the business strategy set by the Board of Directors and the business environment.

The risk and solvency assessment, carried out at least once a year, updates and defines the risk appetite and risk tolerance and allocates risky capital overall and across individual risks. Risk limits and risk-taking limitations are set to correspond to the above-described strategic intent. The realisation of risk limits is monitored continuously, and risk-taking is adjusted and, if required, the management framework is updated quarterly to correspond to any changes in the business or investment environment.

The management of own funds and solvency is part of the risk management system. The managing director and senior management are responsible for drawing up a risk-taking plan and setting solvency targets. The risk management director is responsible for ensuring that comprehensive and varied analyses on risks, future scenarios and financial impacts resulting from the realisation of risk positions are available for drawing up risk-taking plans and solvency targets. The board of directors approves the risk-taking plans and the set risk limits.