Operating en­viron­ment

Operating en­viron­ment

Mandatum is one of Finland’s leading financial institutions, and the largest life insurance company in Finland by market share*. The company can serve a large part of the Finnish life insurance and investment market. Many of the positive features of the Finnish operating environment support the financing and growth profile that Mandatum targets.

*  Financial Supervisory Authority: (FIN-FSA) Finanssivalvonta: Finnish life insurance companies’ premiums written (online publication). Based on 2023 total premiums written. 


Market environment

The investment markets ended the year 2023 on a strong note. The year 2022 had been difficult for both equity and fixed income investments, but 2023 turned out to be strong across asset classes. For equities the year was marked by top returns for a few, but even more significant, companies, as US tech companies doubled in value after a weak 2022. The S&P 500 index rose by 26.3% with dividends, and the Stoxx Europe 600 index rose by 15.8%. The OMXH all-share index eventually recovered from its drawdowns, ending 0.6% up for 2023 with dividends.

Year appeared to be a mixed one for the fixed income markets. Until the autumn, returns were good for investments with a higher credit risk, while the corporate bonds of investment grade companies and government bonds, which are more dependent on interest rate movements, lagged behind at zero return. However, the decrease in interest rates in November and December turned also their performance clearly positive. In the end, many asset subclasses in the fixed income markets saw the best returns since the recovery from the financial crisis. In Europe, the return on the investment grade corporate bond index was over 8% and 13.5% on senior loans.

The key market trends for the year 2024 seem to follow the same pattern as in the previous two years. In 2023, inflation eventually started to fall, even faster than expected. The current year begins with hopes and even expectations that inflation would finally fall to the target level of around 2% set by major central banks. In December 2023, the turnaround in inflation prompted the Federal Reserve to soften its outlook on future monetary policy, which had tightened dramatically over the past two years. It now appears that we have seen the interest rate peaks of the current rate hike cycle. The situation is similar in Europe, where it is estimated that the key ECB policy rate has peaked.

In the real economy, 2023 turned out clearly better than expected, especially in the United States where the broader economic data still shows no major indications of a deterioration in macro outlook in the near future. However, the increased interest rates have increased the risk of a recession in the United States too, and this is significant for the global economy as a whole. In the Eurozone, business confidence surveys are showing signs of decline, indicating hightened risk of a recession.

Going into 2024, the risk premium for global equities is low and valuation differences between equity markets have increased. Fixed income asset classes thus remain still relatively attractive. The equity market rally seen at the end of 2023 will put pressure on current pricing on the markets: corporate earnings will have to stay on their strong growth track to match the current equity market valuation level. The markets are pricing in substantial cuts in central bank interest rates for 2024, largely based on the current positive consensus that a recession will be avoided in the US.

Overview of Finland’s insurance sector

Finland’s insurance sector is defined by a high level of statutory insurance cover. In 2022, 65 per cent of all of the premiums written on Finland’s insurance market was statutory pension insurance. The gross premiums written on life insurance made up 16 per cent of the total markets. Similarly, the share of non-life insurance of the gross premiums written was 19 per cent (Finance Finland, Finnish Insurance in 2022).

The ageing of Finland’s population has impacted the country’s statutory pension system, the purpose of which is to offer financial support to its retired citizens. As a result, the need for individuals to supplement their statutory pensions with voluntary pension savings has grown.

Overview of the life insurance market

Life insurance includes products that are designed to offer financial security to policyholders. The narrow definition of life insurance comprises private risk insurance products, including, but not limited to, insurance granted in case of death, serious illness and disability. A broader definition of life insurance also includes supplementary pension products and savings products in the form of capital redemption contracts or savings insurance. Similarly to the insurance products offered in other countries, the return on pension and savings policies depends on the type of insurance, which can be unit-linked, index-linked or with-profit policies.

At the end of 2022, the total amount of insurance savings in Finland was EUR 56 billion. Based on the product distribution, 38 per cent of liabilities were savings insurance policies, 31 per cent capital redemption contracts, 20 per cent individual pension insurance policies and 11 per cent group pension policies. The markets have grown by an average of 5 per cent per year between 2008 and 2022, mostly due to the sharp increase in capital redemption contracts. The share of unit-linked products has grown from 24 per cent in 2008 to 81 per cent in 2022, which results from policyholders’ and insurance companies’ desire to transfer from with-profit investments to more flexible investment alternatives where investment fund preferences can be adjusted throughout the savings period. The average annual growth rate of with-profit products was 15 per cent between 2008 and 2022. (Finance Finland, statistics, life insurance savings)

Overview of the wealth management market

Wealth management includes the management of different types of financial assets for institutional and private investors. The return on wealth management business consists mainly of fee income, which is attained from managing customers’ financial assets. Fee income is dependent on the amount of managed assets and the return on invested assets. Fee income also depends on the asset class and the complexity of the offered product.

Wealth management can be divided roughly into traditional and alternative wealth management. Traditional wealth management covers passive and active strategies, while alternative wealth management involves investments in non-traditional assets, which are not typically found in traditional equity and bond portfolios, such as private equity investments, real estate and private debt. Compared to traditional wealth management, which is usually available to all types of customers, the customer base for alternative wealth management is usually focused on high net worth individuals and institutional investors. Because alternative wealth management products are by nature more complicated, the fees on alternative wealth management can be higher compared to traditional wealth management.

The wealth managers in Finland can be divided into four approximate segments. Firstly, large banks and insurance companies offer extensive fund portfolios and different investment strategies. The customer base typically includes retail customers, high net worth individuals and institutional customers. Secondly, specialised and independent wealth managers also offer extensive financial portfolios but their offering is not as traditional as those of major banks and insurance companies. Thirdly, alternative wealth managers typically invest in closed private equity funds, with a focus on high net worth individuals and institutional investors. The fourth market segment can be described as generalist investment companies, which offer a broad selection of fund portfolios with a variety of investment strategies and focal areas. These typically have a broad customer base focused on high net worth individuals and institutional investors.

Regulation concerning Mandatum

Mandatum is subject to regulation in all of its countries of operation. Mandatum plc is a Finnish insurance holding company, whose operations do not require authorisation as such. However, based on the Solvency II directive, Mandatum plc is interpreted to be the highest parent company, which is why legislation concerning insurance groups is applied to it. Mandatum Life Insurance Company Limited (Mandatum Life), Mandatum Asset Management Ltd and Mandatum AM AIFM Ltd are authorised companies supervised by the Finnish Financial Supervisory Authority.

Regulation on companies operating in the financial market consists of EU regulation, Finnish legislation, and guidelines and regulatory provisions subordinate to laws, such as the Finnish Financial Supervisory Authority’s guidelines and regulations and the guidelines and recommendations of ESMA, the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA).

Finnish Financial Supervisory Authority

European Commission