Improved actuarial performance in 2022
Actuarial earnings improved during the year but there is still some way to go before they achieve the target levels. The results of investment activities worsened considerably due to weak financial market trends.
The conditions for operating international maritime insurance business were significantly impacted by two factors in particular during 2022: Russia’s invasion of Ukraine in February, as well as rapidly rising inflation. The war has meant a great deal of extra work for Alandia due to a significant increase in the number of sanctions checks, as well as a loss of revenue as a result of customers with links to Russia not having their insurance renewed. Nor were any new insurance policies sold to Russian parties after February 2022.
Rising inflation has affected the claims costs trend in the form of increased costs for spare parts and repair work. Supply chain challenges have also led to longer repair times and thus higher claims costs.
Premium income for the year remained on a par with the previous year. Continued growth came mainly from the international hull insurance market, from the leisure boat markets in both Finland and Sweden, and from the strengthening of the US dollar. Premium income was adversely affected by the company’s previous Russian exposure and a considerable weakening in both the Swedish krona and the Norwegian krone.
The company’s own share of premium earnings increased but was also burdened by reinstatement premiums relating to a relatively large claim where the reinsurers had to cover a significant part of the claim cost.
The claims rate for the year improved to 70%, compared with 80.4% the previous year. The company’s own share of non-life costs decreased as a result of the continued fall in the overall claims frequency during the year. Increasing claims costs per claim had a damping effect, however, as a result of rising inflation.
The company’s expense ratio rose during the year to 24.5%, compared with 24.3% the previous year. This increase is due to higher brokerage commissions as a larger proportion of premiums are arranged through brokers on the international market. Internal administration costs as a share of premium income have continued to fall due to the streamlining of operations and a weaker Swedish krona. We intend to continue our work to streamline our processes and so reduce the expense ratio and enhance the company’s competitiveness. A new ERP system was implemented during the course of the year. The implementation of the system has been challenging and in many ways resource-intensive, but we are starting to resolve the final operational issues. As a result, in 2023 we will begin to see the benefit of the implementation and efficiency improvements.
The return in the investment portfolios was 0.7%, compared with 9.3% the previous year. Given the market conditions, this can be considered a good result, as most financial markets had a negative return for the year. The holdings in Ålandsbanken and Viking Line made a positive contribution to the return, as did the Private Equity funds portfolio. The real assets portfolio also showed a clearly positive return. The draining element of the portfolio was the fixed income portfolio, which, despite a shorter duration than before, was negatively affected by rising market interest rates and credit risk margins.
The company’s solvency position improved slightly during the year as a result of the portfolio transfer and a lower risk level in the investment portfolio. The solvency ratio in accordance with Solvency II is at a very good level of 251%, compared with 247% at the end of the previous year. During the year, rating agency S&P Global changed its outlook for Alandia to stable and at the same time confirmed its A- rating.
On 1 December 2021, Alandia signed a letter of intent with LokalTapiola to sell its statutory accident and patient insurance portfolio, along with the customer relationships, to LokalTapiola. The transaction was completed on 1 July 2022 and the insurance portfolio was transferred to LokalTapiola entirely according to plan.
In 2021, Alandia signed up to the UN Principles for Sustainable Insurance (UN PSI). Work to implement these principles is ongoing and the aim is for the implementation to take place in a way that allows the company’s operations to develop and become continuously more sustainable from the perspective of all stakeholders. The first annual sustainability report was published on the UN’s website in June 2022 and the commitment made by the company means that reports will be published there annually.
On behalf of all Alandia’s staff, I would like to thank our customers, partners, Board members and owners for their continued good cooperation in 2022. A big thank you also from me personally to the entire staff who, in the aftermath of a pandemic, challenging geopolitical circumstances and uncertain economic times, have worked hard to achieve success for Alandia during the year.
Tony Karlström
CEO