Risk management and risk position
The task of risk control is to identify, assess, measure, treat and control risks in all Taaleri Group’s businesses that influence the realization of the Group’s strategic and operative goals, as well as to oversee that the principles approved by the Taaleri Plc Board of Directors are complied with.
Risk management aims to reduce the likelihood of unexpected risks being realised and their impact to Taaleri Group’s business operations. Risk management supports achievement of strategic goals by promoting better utilisation of opportunities in all activities and more efficient distribution of risk-taking capacity to the different functions and projects within the defined risk appetite framework.
In Taaleri Group risk is defined as the effect of uncertainty on objectives. Risk is seen as two-sided, it can be hazard or financial loss but on the other hand there might also be opportunities for better results. Risks are divided into five main categories: strategic and business operations risk, credit risk, liquidity risk, market risk and operational risk (including compliance risk). Sustainability and climate risks are included in the aforementioned risks. Taaleri’s risks and risk management are described in more detail in the 2022 financial statements, which is attached to the 2022 annual report.
The risk capacity of the Taaleri Group consists of a properly optimized capital structure, profitability of business operations and qualitative factors, including good corporate governance, internal control and proactive risk management. Additionally, regulated companies perform proactive capital adequacy assessments. Through effective risk management, the Taaleri Group strives to ensure the continuity of the operations of the Group and its companies, and the risk capacity required to achieve set strategic goals.
Taaleri Group’s attitude towards risk-taking is based on careful consideration of adequate risk/return relationship. Taaleri Plc’s Board of Directors has decided that the Group may not in its activities take a risk that exceeds the agreed risk appetite.
Regarding sustainability risks, Taaleri Group does not take risks in its operations that conflict with Taaleri's Sustainability and Sustainability Risk Policies, the Group's Operating Principles, or Taaleri's voluntary sustainability commitments to external parties.
Segment-specific risks
Taaleri’s continuing operations include two reported segments: Private Asset Management, which is divided to Renewable energy and Other private asset management, and Strategic Investments, which includes Garantia Insurance Company. The group Other presents Group’s non-strategic investments, Taaleri Kapitaali and Group operations not included in the business segments.
Private Asset Management segment: In reporting the Private Asset Management segment is divided into Renewable energy and Other private asset management. Renewable energy includes Taaleri Energia, which develops and invests in industrial-scale wind and solar power projects. It also manages investments throughout their lifecycle. The other areas within Private Asset Management include Taaleri’s real estate, bioindustry and other businesses. Group investments that support the core business and the development of the businesses reported under the Private Asset Management segment are reported under the segment.
The main risks of Taaleri’s private equity fund operations consist mainly of operational risks, risks relating to own investment projects, and, to a slight extent, credit risks. The result of the business is influenced by the development of assets under management, which depends among other things on the progress of private equity fund projects, the development of capital markets and the success of the own fundraising and the success of the cooperation with Aktia. The profit development is also influenced by the realization of performance fees and the success of own investment projects. On the other hand, private equity fund management fees are based on long-term contracts that bring in a steady cash flow.
The objective of the renewable energy business is to channel assets under management to renewable energy production projects and to other energy projects supporting sustainability. The goal is to internationalize and expand the renewable energy business considerably, which naturally increase the risks relating to the growth and internationalization of the operations. The earnings of the renewable energy business are impacted by its success in finding suitable projects, its ability to identify all risks related to renewable energy’s international development, construction, financing and operations, and its success in the internationalization of its operations. The earnings of the renewable energy business are also affected by the success of its own investments in energy projects.
Strategic Investments segment: The objective of Garantia is to modernize collateral practices and provide customers with easy and cost-effective guaranty solutions and new business opportunities through digital channels. The company's business is divided into guaranty insurance and investment operations.
The insurance and investment activities carried out by Garantia Insurance Company are central to Taaleri's risk position. The main risks associated with Garantia’s business operations are credit risks arising from guaranty operations, the market risk regarding investment assets, and regulatory risks. In residential mortgage guaranties, Garantia is dependent on cooperation with its distribution partners. Garantia’s capital adequacy is strong, and its risk position has remained stable.
Other group: The group Other is used to present the Group’s non-strategic investments, Taaleri Kapitaali and Group operations not included in the business segments. The most significant risks of the Other group consist primarily of private investments and financing granted by Taaleri Sijoitus Oy as well as of credit risks related to Taaleri Plc’s granted loans and receivables from credit institutions. In addition to the commission income of Taaleri Kapitaali, the Other group’s earnings consist of the fair value changes in investments and of profits/losses gained in connection with the sales of its investments. The earnings and results of the Other group may thus vary significantly between periods under review.
Capital adequacy
The Taaleri Group forms an insurance company group according to Chapter 26 of the Insurance Companies Act and is supervised by the Finnish Financial Supervisory Authority. According to the FSA's decision, as the parent company of an insurance company group, Taaleri Plc fulfills the definition of a multi-sector holding company according to Chapter 26, section 1, subsection 1, point 10 of the Insurance Companies Act.
Garantia Insurance Company Ltd is an insurance company operating under the supervision of the Finnish Financial Supervisory Authority. Taaleri Plc’s operations are regulated especially by the requirements of a listed company, and Garantia is mainly responsible for meeting the requirements set by the Insurance Companies Act in the Taaleri Group.
Taaleri Private Equity Funds Ltd and Taaleri Energia Funds Management Ltd are licensed as alternative fund managers by the Financial Supervisory Authority. Alternative fund managers are subject to their own capital adequacy requirements.
Taaleri Plc Insurance Company Group
Taaleri Group forms an insurance company group that is supervised by the Finnish Financial Supervisory Authority under Group supervision.
According to the FSA's decision, as the parent company of an insurance company group, Taaleri Plc fulfills the definition of a multi-sector holding company according to Chapter 26, section 1, subsection 1, point 10 of the Insurance Companies Act.
Taaleri Plc publishes here the required information about the Insurance Company Group structure according to Chapter 26, section 44 of the Insurance Companies Act.
Insurance Company Garantia publishes annually its Solvency and Financial Condition Report that can be found on Garantia’s web page.
Solvency according to the Insurance Companies Act (Solvency II)
Garantia’s solvency strengthened clearly during the first half of the year, thanks to an increase in basic own funds and a reduced solvency capital requirement. At the end of June 2023, the company’s basic own funds amounted to EUR 113.7 (105.3) million, and the solvency capital requirement amounted to EUR 43.8 (45.5) million. The solvency ratio, or the ratio of basic own funds to the solvency capital requirement, was 259.8% (231.3).
Basic own funds grew mainly due to profits accumulated in the review period. The solvency capital requirement decreased due to lesser solvency capital requirements for market risks of investment assets.
Solvency II capital adequacy regulations do not fall within the sphere of statutory audit, and hence the Solvency II figures have not been audited.
Compliance
The compliance of the Group's parent company has been outsourced to an external service provider and it consists of a designated Compliance Officer and the Taaleri employees responsible for compliance matters in the businesses cooperating with them. The main tasks of the Group Compliance are to:
- monitor the functioning of the compliance in the regulated group companies
- advise the Executive Management Team and the Board of Directors and other personnel on compliance with regulatory and internal guidelines
- assist Taaleri Plc's Board of Directors, the Executive Management Team and other relevant bodies in compliance risk management
- monitor and regularly evaluate the adequacy and effectiveness of the Group’s measures and procedures to ensure compliance
- supervise anti-money laundering activities in the Group.
Internal audit
Internal Audit is an assurance function independent of the operational functions of the Taaleri Group companies. The Internal Audit function is set up by the Board of Directors and operates under the authority of the Group CEO. The Taaleri Group has outsourced the practical implementation of the Group's internal audit to external service providers.
Internal Audit is an independent, objective assurance and consulting activity designed to verify the adequacy, effectiveness and efficiency of internal control. Internal Audit supports the Group's senior and operational management (Board of Directors, CEO, line managers) in managing and supervising operations.
The objective of the Group's internal audit is to support the Group in achieving its goals by providing a systematic approach to assessing and developing the effectiveness of risk management, risk control and management processes. Internal audit aims to add value to the organization and improve its performance.
Internal audit work is guided by national and international regulations as well as international standards of professional practice in the field, including ethical rules, professional standards, and practical guidelines.