Risks, risk management and capital adequacy


The task of risk management is to identify, assess, measure, mitigate and supervise risks caused by business operations that influence the implementation of the Group's strategy. Risk management aims to mitigate the likelihood of unforeseeable risks being realised, their influence on and the threat they present to the business operations of the Taaleri Group, as well as to support the achievement of the objectives set in the strategy by supervising that the principles set by the Taaleri Plc Board of Directors are complied with in the company's operations. The risks of the Taaleri Group are divided in five main categories: strategic and business operations risk, credit risk, liquidity risk, market risk and operative risk (including compliance risk). The prin-ciples of Taaleri's risk and capital adequacy management are described in note 39 to the financial statements of 2015 (available in Finnish).

The risk-bearing capacity of the Taaleri Group is comprised of a properly optimised capital structure, profitability of business operations and qualitative factors, which include reliable management, internal control and proactive risk and capital adequacy management. Taaleri Group's attitude towards risk-taking is based on calculated risk/return thinking. The Group may not in its activities take a risk that jeopardises the target level set for the capital adequacy ratio of the company's own funds (1.5 times the calculated minimum level of equity).

The key risks of the Financing business are the credit risks of the guaranty insurance operations and the market risks of the investment assets which the underwriting reserves cover. Garantia's capital adequacy is strong, and its risk position remained stable in early 2016. The share of the weaker rating classes (C+ or below) remained low at 2.7 (2.5) percent. The most important industries in the insurance exposure were construction at 36% (33) and manufacturing 26% (33). Of the construction exposure, 54% has been reinsured (58).

The largest risks of Taaleri's traditional Wealth Management segment mainly consist of operative risks and, to a slight extent, credit risks. The most significant risks of other business operations consist of private equity investments made by Taaleri Investments Ltd and loans granted from the credit risks of Taaleri Plc and credit institution receivables.

Taaleri falls within the sphere of the regulation of large customer risks determined in the EU Solvency Regulation. At the end of the period under review, Taaleri's largest single customer risk was 36.3% of the group's shareholders' equity and, combined, liabilities of the two largest customer entities exceeded the 25 percent limit required by the law. The maximum customer risk regulation is only applied to Garantia as part of the Taaleri Group. The two customer entities in question are related to the guaranty insurance liability, which was granted in its entirety before the change in ownership, at which time the regulation in question did not concern the insurance company. The Financial Supervisory Authority approved the action plan prepared by Taaleri to lower the major customer risks to the level required by the law by 30 June 2017.


Capital adequacy according to the Act on the Supervision of Financing and Insurance Groups

Taaleri Group forms a financing and insurance conglomerate according to the Act on the Supervision of Financial and Insurance Conglomerates (Rava) (2004/699) as a result of the acquisition of Garantia Insurance Company Ltd. The Financial Supervisory Authority (FSA) confirmed the formation of the Rava Conglomerate in its decision on 23 October 2016.

The Rava Group's own funds amounted to EUR 84.3 million on 30 June 2016, exceeding the minimum capital requirement for own funds of EUR 27.0 million by EUR 57.3 million. The Group's capital adequacy ratio was 312.4 percent, while the statutory minimum requirement is 100 percent.

Capital requirement for the financing and insurance Group, EUR million

30 June 2016

31 December 2015

Shareholders' equity of the Taaleri Group



Goodwill and other intangible assets



Equalization provision



Minority interest



Planned distribution of assets -0,0-5,7
Total own funds of the Group 84,368,2

Financing sector’s requirement for own funds

Insurance sector’s requirement for own funds
Conglomerate’s minimum amount for own funds 27,014,5
Conglomerate’s capital adequacy 57,353,6

Conglomerate’s capital adequacy ratio



Within the Taaleri Group, the regulatory capital according to the Act on Credit Institutions (610/2014) and the EU Solvency Regulation (Regulation (EU) No 575/2013 of the European Parliament and of the Council) is determined and reported to the supervised parties operating in the Financing sector. Taaleri's Financing sector comprises the subsidiaries and associated companies of Taaleri Plc, excluding Garantia Insurance Company Ltd. Taaleri applies the standard approach in the regulatory capital calculation of the credit risk capital requirement and the basic approach in the calculation of the operative risk capital requirement. The Taaleri Group's objective for the capital adequacy of the Financing sector is 12 percent.

On 23 October 2015, FSA granted Taaleri Plc an exemption order that is valid until 31 December 2016, on the basis of which Taaleri will form a new consolidation group related to capital adequacy calculation, which does not include Taaleri Plc. Due to this, the Group does not report the regulatory capital according to CRR, only the capital adequacy requirement according to Rava.

The core capital adequacy ratio and capital adequacy ratio of the Financing sector were 30.7 (13.8) percent in the Rava Group's regulatory capital calculation. The regulatory capital of the Financing sector amounted to EUR 27.8 (18.7) million on 30 June 2016, and was comprised in its entirety of items included in CET1 capital. The total amount of risk-weighted items in the Financing sector was EUR 82.9 (130.0) million at the end of the period under review, of which the credit risk accounted for EUR 25.1 (76.3) million and operative risk for EUR 57.8 (53.7) million.

The Solvency II rules tightened the capital requirements, which is also reflected in the regulatory capital according to the Act on the Supervision of Financing and Insurance Groups (2004/699). At the same time, however, the amount of own funds of the Taaleri Group (Rava) strengthened, because it is no longer necessary to deduct the equalization provision from shareholders' equity when calculating the amount own funds. The Solvency II regulatory capital provisions were not valid in the 2015 financial period, so the capital requirements are not comparable.

Within the Taaleri Group, the regulatory capital according to Solvency II is determined and reported not only to Garantia Insurance Company Ltd, but also to Taaleri Plc and Garantia together in the capital requirement calculation of the Group. Taaleri applies the standard approach in its regulatory capital calculation. The solvency capital requirement of the parent company Taaleri Plc and the subsidiary Garantia Insurance Company Ltd (SCR) was EUR 19.7 (22.7) million.

Solvency according to the Insurance Companies Act (Solvency II)

The Solvency II regulatory capital requirements for insurance companies entered into force on 1 January 2016. The objective of Solvency II is a harmonised, comprehensive and risk-based regulatory capital frame-work that promotes internal competition within the EU, the effective utilisation of capital and companies' own risk management and, through this, enhances the security of the benefits of the insured.

Garantia’s solvency remained strong. Garantia’s basic own funds amounted to EUR 96.4 million (96.1), which clearly exceeded the solvency capital requirement of EUR 19.2 (19.0) million. The solvency ratio, or the ratio of basic own funds to the solvency capital requirement, was 501% (506). Garantia’s own funds are formed in full of unrestricted Tier 1 basic own funds.

Taaleri’s risks and their estimated risk-based capital requirement in 2015 (pdf)