Aktia plc's Accounts Announcement 1 January - 31 December 2009
AKTIA OYJ
STOCK EXCHANGE RELEASE
Accounts Announcement
February 15, 2010 at 8 a.m.
Aktia plc's Accounts Announcement 1 January - 31 December 2009
Good profitability in 2009 - Operating profit for 2009 increased to EUR 47.0 million (EUR 6.6 million). Earnings per share was EUR 0.52 (0.09). - The Board of Directors is proposing a dividend of EUR 0.24 (EUR 0.15) per share. - Aktia Bank plc's credit rating by the international credit rating agency Moody's Investors Service remained at the classification, P-1. The credit rating for long-term borrowing is A1 and that for financial strength C. All ratings have a stable outlook. - Aktia series A and R shares were listed on the Nasdaq OMX Helsinki exchange on 29 September 2009. The market value of the Aktia Group was approximately EUR 550 million at the end of 2009. - Aktia expects operating profit for 2010 to be on the same level as in 2009.
October - December 2009 - Operating profit for October - December 2009 amounted to EUR 2.6 million (EUR -30.7 million). Earnings per share was EUR 0.02 (-0.38). Operating profit is adversely affected by a cost of EUR 9.2 million due to a calculation error in the division of fair values of options that are partly reported via income statement and partly via the fund at fair value. The fund at fair value will increase correspondingly. - Net interest income increased 49.5% to EUR 39.8 million (EUR 26.7 million). Net income for life insurance was EUR 3.2 million (EUR -42.9 million). Loan write-downs were lower than in the previous quarters, amounting to EUR 5.5 million (EUR 0.4 million).
CEO's comments "Thanks to active managing of interest rate risks and a conservative investment strategy we were able to report good operating profit. In accordance with Group strategy, Aktia will in 2010 be focusing on stronger customer relations and development of Internet services."
Jussi Laitinen
-------------------------------------------------------------------------------- | (EUR million) | 10-12/ | 10-12/ | Change | 1-12/20 | 1-12/20 | Change | | | 2009 | 2008 | | 09 | 08 | | -------------------------------------------------------------------------------- | Net interest income | 39.8 | 26.7 | 49.5% | 152.2 | 101.0 | 50.8% | -------------------------------------------------------------------------------- | Total operating | 51.4 | 1.0 | - | 233.1 | 127.2 | 83.2% | | income | | | | | | | -------------------------------------------------------------------------------- | Operating profit | 8.0 | -30.3 | - | 78.7 | 7.3 | 976.5% | | before write down | | | | | | | | on credits | | | | | | | -------------------------------------------------------------------------------- | Write-downs on | -5.5 | -0.4 | - | -31.7 | -0.7 | - | | credits and other | | | | | | | | commitments | | | | | | | -------------------------------------------------------------------------------- | Operating profit | 2.6 | -30.7 | - | 47.0 | 6.6 | 611.3% | -------------------------------------------------------------------------------- | Cost-to-income | 0.66 | 0.61 | -8.2% | 0.57 | 0.65 | -12.3% | | ratio | | | | | | | -------------------------------------------------------------------------------- | Earnings per share | 0.02 | -0.38 | - | 0.52 | 0.09 | 500.3% | | (EPS), EUR | | | | | | | -------------------------------------------------------------------------------- | Equity per share | - | - | - | 6.52 | 4.85 | 34.5% | | (NAV), EUR | | | | | | | -------------------------------------------------------------------------------- | Return on equity | 1.2 | -31.1 | - | 8.7 | 1.8 | 382.4% | | (ROE),% | | | | | | | -------------------------------------------------------------------------------- | Capital adequacy | - | - | - | 15.9 | 13.7 | 16.8% | | ratio,% | | | | | | | -------------------------------------------------------------------------------- | Tier 1 capital | - | - | - | 9.5 | 9.3 | 2.2% | | ratio,% | | | | | | | -------------------------------------------------------------------------------- | Write down on | - | - | - | 0.51 | 0.01 | - | | credits/total | | | | | | | | credit stock | | | | | | | -------------------------------------------------------------------------------- | Dividend per share | | | | 0.24 | 0.15 | 60.0% | | *) | | | | | | | -------------------------------------------------------------------------------- | *) Board proposal | | | | | | | | of dividend 2009 | | | | | | | --------------------------------------------------------------------------------
Profit for October - December 2009 The Group's operating profit in the fourth quarter was EUR 2.6 million (EUR -30.7 million). Operating profit is adversely affected by a cost of EUR 9.2 million due to a calculation error in the division of fair values of options that are partly reported via income statement and partly via the fund at fair value. The fund at fair value will increase correspondingly.
Income During October - December the Group's total income increased to EUR 51.4 million (EUR 1.0 million). Net interest income increased to EUR 39.8 million (EUR 26.7 million). Net income for life insurance was EUR 3.2 million (EUR -42.9 million) and that for non-life insurance EUR 1.5 million (-). Net commission income increased to EUR 14.5 million (EUR 9.3 million), EUR 0.9 million (-) of which was the contribution from Aktia Invest. Income from the real estate agency business increased to EUR 2.2 million (EUR 1.2 million) between October and December
Expenditure During October - December, costs amounted to EUR 42.7 million (EUR 31.0 million), an increase of 37.7%. This increase is primarily due to the new businesses, Aktia Non-Life Insurance and Aktia Invest, together with higher rents.
As a result of the staff restructuring in the non-life insurance company, additional costs of EUR 1.1 million have been reported.
Group costs that are allocated to the segments are reported here as Group's common costs. These amounted to EUR 9.7 million (EUR 5.8 million) for October - December.
Segment overview October-December 2009 -------------------------------------------------------------------------------- | (EUR million) | 10-12/ 2009 | 10-12/ 2008 | Change | -------------------------------------------------------------------------------- | Banking business | 19.6 | 11.4 | 72.2 % | -------------------------------------------------------------------------------- | Asset Management | 1.4 | -0.1 | - | -------------------------------------------------------------------------------- | Life Insurance | 0.0 | -46.4 | - | -------------------------------------------------------------------------------- | Non-life Insurance | -4.5 | - | - | -------------------------------------------------------------------------------- | Miscellaneous | -4.7 | 9.0 | - | -------------------------------------------------------------------------------- | The Group's | -9.7 | -5.8 | 67.4 % | | common | | | | | costs | | | | -------------------------------------------------------------------------------- | Eliminations | 0.5 | 1.2 | -59.5 % | -------------------------------------------------------------------------------- | Total | 2.6 | -30.7 | - | --------------------------------------------------------------------------------
The operating profit for the segment banking business, before the Group's common costs, was EUR 19.6 million (EUR 11.4 million). Net interest income increased by 62.5% to EUR 38.8 million (EUR 23.9 million). Loans totalling EUR 5.1 million (EUR 0.4 million) were written down, which is a much lower figure than in the second and third quarters of 2009.
The segment asset management did relatively well. Operating profit before the Group's common costs improved to EUR 1.4 million (EUR -0.1 million) and the market share of mutual funds increased to 7.0% (6.0%).
A conservative investment policy resulted in the life insurance business contributing 0.0 (EUR -46.4 million) to the Group's operating profit. Profit for the comparative period in 2008 contained significant write-downs on investments.
Non-life insurance contributed EUR -4.5 million (-) to the Group's operating profit. Profit from the non-life insurance business was adversely affected by an unusually large number of personal injury claims covered by motor liability insurance. The non-life insurance company's write-downs for outstanding premiums (credit losses) amounted to EUR 0.3 million (-).
Press and Analysts' Conference 15 February 2010 at 11 - 12 a.m. Aktia's CEO Jussi Laitinen and Deputy Managing Director, CFO Stefan Björkman present the report and answer questions. The presentation will be available at www.aktia.fi.
The conference is held at Aktia's Head Office, Mannerheimintie 14 A, 7th floor.
Activity in 2009
- The Group's operating profit for 2009 was EUR 47.0 million (EUR 6.6 million). - The Group's cost to income ratio for 2009 was 0.57 (0.65). - The Group's profit was EUR 34.0 million (EUR 5.8 million). - Profit per share was EUR 0.52 (EUR 0.09). - Equity per share (net asset value) was EUR 6.52 (EUR 4.85). - The Tier 1 capital ratio was 9.5 (9.3) and the capital adequacy ratio 15.9 (13.7).
The general economic situation Interest rates were at an exceptionally low level throughout 2009 and yield curves were steep. Despite the low interest rates and the steep yield curves, Aktia was able to report strong net interest income, thanks to successful risk management strategies.
The market's access to liquidity was supported by an injection of capital from public authorities and central banks with the aim of steadying the financial markets. Aktia's liquidity was supported by stable deposits and bond issues by the Mortgage Bank, and the bank did not therefore have to take advantage of assistance from the central bank. Competition for household deposits sharpened considerably in 2009 and Aktia largely maintained its market shares.
During 2009, valuation levels for investments recovered, which was also reflected in favourable development among Aktia's financial assets.
The acute financial crisis that began in the autumn of 2008 resulted in a generally higher level of loan write-downs, particularly during the second and third quarters of 2009. The small and medium sized companies among Aktia's corporate customers were particularly exposed, as were companies in the construction sector whose activities fell dramatically. By the end of 2009, signs of recovery were becoming apparent.
The financial crisis has resulted in many new initiatives for regulating banking and insurance businesses, which has brought about uncertainty concerning future capital requirements.
-------------------------------------------------------------------------------- | Key figures | 2009 | 2008 | -------------------------------------------------------------------------------- | GDP growth | | | -------------------------------------------------------------------------------- | World | -1.3* | 3.7 | -------------------------------------------------------------------------------- | EU | -3.8* | 0.9 | -------------------------------------------------------------------------------- | Finland | -7.5* | 0.9 | -------------------------------------------------------------------------------- | Consumer price index | | | -------------------------------------------------------------------------------- | EU | 0.3* | 3.3 | -------------------------------------------------------------------------------- | Finland | 0.1* | 4.0 | -------------------------------------------------------------------------------- | Other key ratios | | | -------------------------------------------------------------------------------- | Development of real value of | -0.3 | -2.5 | | housing in Finland | | | -------------------------------------------------------------------------------- | OMX Helsinki Cap | 28.3 | -49.5 | -------------------------------------------------------------------------------- | Interest rates | | | -------------------------------------------------------------------------------- | ECB | 1.00 | 4.25 | -------------------------------------------------------------------------------- | Euribor 12 months | 1.30 | 1.10 | -------------------------------------------------------------------------------- | Euribor 3 months | 0.70 | 4.50 | -------------------------------------------------------------------------------- | Unemployment in Finland | 8.4* | 6.4 | -------------------------------------------------------------------------------- | * Aktia's chief economist's prognosis | --------------------------------------------------------------------------------
Income The Group's total income increased by 83.2% between January and December to EUR 233.1 million (EUR 127.2 million).
Net interest income rose in 2009 by 50.8% to EUR 152.2 million (EUR 101.0 million). The positive impact of managing interest rate risk and the exceptionally steep decline of interest rates have made a significant contribution to the net interest income. As interest rate risks are managed with an average perspective of three years, the positive outcome for 2009 can be characterised as temporary. The derivatives used by Aktia Bank to limit its interest rate risk improved net interest income to EUR 33.6 million (EUR -8.3 million). Aktia gained from its good liquidity position in the unstable situation on the financial markets. Net interest income from lending to and borrowing from customers was stable.
Net commission income increased by 12.9% to EUR 46.3 million (EUR 41.0 million). Commission income from funds, asset management and brokering increased to EUR 28.1 million (EUR 20.8 million). Card and payment services commissions rose to EUR 11.5 million (EUR 11.0 million).
The real estate agency business improved significantly during the last months of 2009 and income rose by 13.9% to EUR 8.1 million (EUR 7.1 million).
Net income from life insurance amounted to EUR 14.0 million (EUR -33.8 million).
This increase primarily comes from a clear improvement in net investment income.
Aktia Non-Life Insurance, consolidated in the Aktia Group since 1 January 2009, reported a net income of EUR 15.2 million (-) from non-life insurance. Net income from the insurance business includes insurance premium income, net income from investment activities, insurance claims paid and the change in provisions. The non-life insurance company's combined ratio was 119%.
Other income reduced by EUR 13.6 million to EUR 5.4 million (EUR 19.0 million).
Expenditure The Group's operating costs increased in 2009 by 27.5% to EUR 154.2 million (EUR 120.9 million).
Rents amounted to EUR 9.4 million (EUR 5.4 million).Personnel costs increased by 30.7% to EUR 79.2 million (EUR 60.6 million) for the year.
Other administration costs increased by 16.6% to EUR 44.8 million (EUR 38.4 million). Total depreciation and write-downs on tangible and intangible assets was EUR 6.9 million (EUR 5.7 million).
Other operating costs amounted to EUR 23.4 million (EUR 16.2 million) in 2009.
The changes are primarily due to the new businesses, Aktia Non-Life Insurance and Aktia Invest, advisory fees connected with the listing on the Stock Exchange, higher requirements concerning deposit securities and increased rents.
Balance sheet and off-balance sheet commitments The Group's balance sheet total increased by 10.6% over the period and amounted to EUR 10,556 million (EUR 9,540 million at 31 December 2008). This increase in the balance sheet total is largely due to growth in the mortgage stock and the financial assets within the banking business.
The Group's total lending to the public amounted to EUR 6,061 million (EUR 5,426 million) at the end of the year, representing an increase of EUR 635 million (11.7%). Excluding the mortgages brokered by savings and local cooperative banks that the local banks are committed to capitalise, the Group's lending increased by EUR 348 million (7.9%) from the year-end. Loans to private households accounted for EUR 4,924 million or 81.2%. 86.2% of Aktia's loans to private households were secured against adequate real estate collateral under Basel 2 rules.
12.9% of Aktia's loan stock was corporate loans and 4.8% loans to housing associations.
The housing loan stock totalled EUR 4,598 million (EUR 4,036 million), of which mortgages granted by Aktia Real Estate Mortgage Bank plc made up EUR 2,498 million (EUR 1,968 million). In all, housing loans increased by 13.9%. New corporate lending continued to be moderate. Loans to companies reduced by 2.7% from the beginning of the year, totalling EUR 782 million (EUR 804 million). Loans granted to housing associations increased by 31.3% during the period to EUR 289 million (EUR 220 million).
Interest-bearing financial assets available for sale increased by 16.7% to EUR 3,277 million (EUR 2,808 million). These assets mainly consist of the banking business' liquidity reserve.
Total deposits from the public, associations and credit institutions fell by 5.2% to EUR 4,754 million (EUR 5,015 million), of which, borrowing from the public and public sector entities fell by 2.2% from the year end, totalling EUR 3,029 million (EUR 3,098 million). Other refinancing increased by 29.2% to EUR 4,046 million (EUR 3,130 million). This growth is largely due to an increase in debt securities issued and repurchase agreements.
Aktia Real Estate Mortgage Bank plc issued three covered bonds in 2009. In February, a bond of EUR 125 million was issued with a floating interest rate and three-year maturity. A second bond was issued in June worth EUR 600 million with a fixed interest rate and five-year maturity. A third bond was issued in October worth EUR 150 million with a fixed interest rate and a maturity of approx. 3 years. Outstanding Aktia Bank certificates of deposit amounted to EUR 295 million at the end of the year and bonds issued by the Group EUR 2,453 million, which represents an increase of EUR 596 million during the year. Aktia Bank also issued new subordinated debts and index-linked loans with a total value of EUR 89 million.
Life insurance provisions amounted to EUR 805 million (EUR 777 million) EUR 210 million (EUR 150 million) of which unit-linked.
Non-life insurance provisions stood at EUR 119 million (EUR 110 million at 1 January 2009), including EUR 10 million (EUR 12 million at 1 January 2009) for valuation of provisions at fair value on acquisition.
Off-balance sheet commitments increased by EUR 47 million from the year-end and amounted to EUR 575 million (EUR 529 million). This increase was largely due to growth in unused credit facilities (loan promises and limits) and high liquidity commitments with the local banks.
Aktia Group's equity amounted to EUR 466 million (EUR 317 million) at the end of the period. The Group's fund at fair value amounted to EUR 43 million (EUR -36 million) and showed an improvement of EUR 80 million from the beginning of the year.
Segment overview Aktia plc's division into business segments was changed 1 January 2009 so that the segments Retail Banking and Corporate Banking & Treasury are combined into a segment entitled Banking Business also including real estate agencies. The other segments are Asset Management, Life Insurance, Non-Life Insurance and Miscellaneous. The Miscellaneous segment includes Group administration, certain administrative functions and return on equity.
Comparative figures for 2008 relating to the new segmentation were published on 8 April 2009.
Operating profit before common costs -------------------------------------------------------------------------------- | (EUR million) | 1-12 2009 | 1-12 2008 | Change | -------------------------------------------------------------------------------- | Banking business | 84.9 | 54.6 | 55.5 % | -------------------------------------------------------------------------------- | Asset Management | 3.6 | 4.4 | -17.1 % | -------------------------------------------------------------------------------- | Life Insurance | 4.0 | -47.4 | - | -------------------------------------------------------------------------------- | Non-life Insurance | -6.0 | - | - | -------------------------------------------------------------------------------- | Miscellaneous | -2.0 | 20.3 | - | -------------------------------------------------------------------------------- | The Group's common costs | -35.4 | -24.9 | 42.2 % | -------------------------------------------------------------------------------- | Eliminations | -2.3 | -0.4 | 490.1 % | -------------------------------------------------------------------------------- | Total | 47.0 | 6.6 | 611.3 % | --------------------------------------------------------------------------------
Banking business The operating profit of the banking business before allocation of the Group's common costs increased over the year to EUR 84.9 million (EUR 54.6 million). The banking business' share of the Group's common costs was EUR 29.3 million (EUR 23.5 million).
Operating income totalled EUR 193.7 million (EUR 124.2 million). This improvement is mainly attributable to net interest income which increased to EUR 146.9 million (EUR 93.6 million). The banking business' cost-to-income ratio correspondingly improved to 0.57 (0.65).
Net commission income totalled EUR 33.7 million (EUR 29.4 million) for 2009.
Operating expenses rose to EUR 107.3 million (EUR 92.4 million). The increase in costs includes an increased payment to the Deposit Guarantee Fund as well as increased rents as a result of selling off office premises during 2008.
Sales activities are supported by the Aktia Dialogue concept whereby customers'
needs are mapped out and Aktia's whole service portfolio is presented. During
2009, 20,000 Dialogues were carried out, which is expected to increase the
number of total customers in 2010.
Aktia's lending to private households, including the mortgages brokered by Aktia, increased by 9.3% to EUR 3,658 million (EUR 3,346 million). Mortgage loans brokered by Aktia amounted to EUR 1,305 million (EUR 1,058 million). In addition, the savings and local co-operative banks brokered mortgages amounting to EUR 1,267 million (EUR 997 million). Aktia's market share in housing loans to households amounted to 4.23%.
The average lending margin for new housing loans was 1.03% (0.60) in December,
which will have a positive impact on the net interest income in the longer term.
Total savings by households increased by 7.3% from the beginning of the year, totalling EUR 3,113 million (EUR 2,900 million). Of these, deposits were EUR 2,372 million (EUR 2,368 million) and savings in mutual funds stood at EUR 741 million (EUR 532 million).
Aktia Real Estate Mortgage Bank plc showed continued growth. The total credit stock grew by 27.2% to EUR 2,636 million. Of the credit stock, 51.1% was brokered by Aktia's branch offices and 48.9% by savings and local co-operative banks.
The operating profit of the real estate agency business developed favourably and amounted to EUR 0.9 million (EUR -1.1 million), mainly as a result of cost adjustment and more activity on the market during the second half of the year.
Asset Management Operating profit for Aktia's asset management business, before allocation of common costs, fell during the year to EUR 3.6 million (EUR 4.4 million). Asset management's share of the Group's common costs was EUR 2.7 million (EUR 1.2 million).
The operating profit for the period included non-recurring items, mainly capital losses of approximately EUR 0.5 million.
Aktia provides a wide and competitive range of services on the capital market, for both private individuals and institutions. Managed assets developed favourably during 2009. The Asset Management segment continued to focus on private banking operations and institutional investors.
Operating income, i.e. income after reversals to the Group's other units and business partners, was EUR 15.6 million (EUR 12.5 million). Operating costs increased by EUR 5.5 million to EUR 14.7 million, of which personnel costs made up EUR 8.1 million (EUR 4.8 million). This is largely due to greater investment of resources in the private banking business and institutional investment activities.
The volume of funds managed and brokered by Aktia was EUR 3,786 million (EUR 2,490 million). Aktia's market share was 7.0% (6.0%) at the end of the period - this includes the share of brokered funds. The total market is based on information from the Finnish Association of Mutual Funds.
The assets managed by Aktia Asset Management and Aktia Invest increased, thanks to an upswing in the markets, and totalled EUR 5,996 million (EUR 4,539 million). Assets managed by Aktia Invest amounted to EUR 2,100 million (-). The customer assets of Private Banking totalled EUR 926 million (EUR 738 million). The number of customers in Private Banking increased by approximately 13% in 2009.
Life Insurance The contribution of the life insurance business to the Group's operating profit was EUR 2.7 million (EUR -47.7 million). Life insurance business' share of the Group's common costs amounted to EUR 1.4 million (EUR 0.2 million).
The segment's operating result for both the previous year and the reported period include non-recurring items that make comparison difficult. Such items include write-downs of the investment portfolio, changes in the discount rate for the interest-based provisions and capital gains from real estate holding divestments in 2008. At Group level, these non-recurring items amounted to EUR -4.3 million (EUR -14.1 million) between January - December.
Premium income was EUR 80.5 million (EUR 91.0 million). A strategic line has been drawn so that all new sales are directed against the unit link and risk insurance contributes to lower volumes of new sales. The decrease in premium income is mainly due to the fact that the sales of single premium policies were low until autumn 2009. In contrast, premium volumes from unit-linked pension insurance schemes and risk insurance policies developed favourably and increased. Of the premium volume for savings and investment-linked insurance and pension insurance, unit-linked insurance accounted for around 62%. At the end of the year, Aktia launched a new insurance product, the capitalisation agreement. The Aktia Capitalisation Agreement is a time investment-linked insurance policy, in the context of which the customer can choose different investment instruments.
Insurance claims and benefits totalled EUR 79.8 million (EUR 86.7 million). The decrease in insurance claims paid resulted primarily from a sharp fall in the surrender of single-premium policies during the second half of the year. In contrast, claims paid for pensions and health insurance increased. The loss ratio for risk insurance remained at a good level, 79% (81%).
Operating costs, including the Group's common costs, totalled EUR 13.3 million (EUR 13.4 million). Within the life insurance business, steps to streamline operations have continued, as has work to improve cost efficiency. Despite the additional expenses brought about by the modified principles for allocating the Group's administration expenses, expenses for the year are at the same level as the year before. The cost ratio stood at 100.7% compared to 99.0% for the year before. The sales organisation of the life insurance segment has been transferred to Aktia Non-Life Insurance and the streamlining measures taken have brought about certain non-recurring costs. The coordination of sales distribution is expected to bring cost benefits going forward from 2010.
The return on the company's investments based on market value was 5.6% (-9.5%). To enable stable returns on investment in the long term and to fulfil the upcoming solvency requirements, the risks in the investment portfolio have been reduced and portfolio reallocation continued. The restructuring of the investment portfolio has brought about both capital gains and losses in the form of write-downs. Net income from investment business includes write-downs of approximately EUR 22 million of financial assets.
Provisions totalled EUR 805 million (EUR 777 million), of which provisions for unit-linked insurance policies represented 26% (19%). Unit-linked provisions amounted to EUR 210 million (EUR 150 million) and interest-linked provisions amounted to EUR 595 million (EUR 628 million). During the first and second quarter 2009, the discount rate for certain elements of these provisions was increased and the average discount rate for all interest-bearing provisions was 3.6%. This increase reduced provisions by EUR 19.3 million and has a positive impact on the profit for the year. Customers with interest-linked policies who are entitled to additional benefits shall receive for 2009 a return comprising the calculation rate and customer payment that varies between 2.8% and 4.5%. More information on the company's customer payment policy can be found on Aktia's website at www.aktia.fi.
The company's solvency improved and amounted to 14.4% compared to 8.5% at the year-end.
Non-Life Insurance The contribution of the non-life insurance business to the Group's operating profit for 2009 was EUR -7.7 million. Non-life insurance business' share of the Group's common costs amounted to EUR 1.7 million (-). Aktia Non-Life Insurance was merged with Aktia plc on 1 January 2009. In 2008 and in previous years, the company has applied Finnish accounting principles (FAS). In conjunction with the merger, the company has, for consolidation reasons, started applying IFRS reporting principles. An opening balance according to IFRS was prepared as at 1 January 2009. The company's opening balance according to IFRS includes equity amounting to EUR 32 million, technical provisions amounting to EUR 99 million, while the balance sheet total stood at EUR 155 million.
Insurance premium income for Aktia Non-Life Insurance increased by approximately 4% on the corresponding period last year. This increase is above the average growth in the market and is attributable to both private and corporate customers. Premium income before the reinsurers' share was EUR 66.3 million. Premium income for the period after the reinsurers' share and change of premium liabilities amounted to EUR 60.6 million. Claims expenditure amounted to a total of EUR 50.1 million.
The operating costs totalled EUR 21.7 million. This includes a total of EUR 0.9 million of non-recurring costs for the codetermination negotiations concluded during the fourth quarter. Write-downs on outstanding premiums (loan losses) for the period totalled EUR 0.7 million. The total cost ratio for 2009 was 119.0%. Restructuring costs, increased costs from the Group and a higher level of claims, primarily personal injury claims covered by motor liability insurance, contributed to a marked increase in the total cost ratio during the fourth quarter.
Net income from investment business amounted to EUR 3.8 million. The result from investment business was adversely affected by net capital losses totalling EUR -1.2 million which resulted from consciously reducing the level of risk in the investment portfolio and selling off all the company's equity investments during the first quarter. The return on the company's investments based on market value was 1.5%.
Of the non-life insurance business' total provisions of EUR 110 million (EUR 99 million at 1 January 2009), the actual provisions for paying claim benefits stood at EUR 89 million (EUR 79 million at 1 January 2009). The market value of the company's investment portfolio was EUR 129 million (EUR 131 million at 1 January 2009) and the company's risk carrying capacity was 72.4% (90.3% at 1 January 2009). The integration of Aktia Non-Life Insurance's distribution channels into Aktia's branch office network has increased customer activity particularly in the private customer sector.
Miscellaneous The operating profit of the Miscellaneous segment was EUR -2.0 million (EUR 20.3 million) during 2009. During 2008 much of Aktia's real estate holdings were disposed of which generated capital gains. In conjunction with this divestment, rental incomes also reduced during 2009.
Capital adequacy and solvency The Bank Group's capital adequacy amounted to 15.9% compared to 13.7% last year. The Tier 1 capital ratio was 9.5% (9.3%). The year's results and higher valuations of financial assets strengthened capital adequacy.
During the first quarter of 2009, Aktia Bank sold all its shares in Aktia Life Insurance to the Group's parent company. This improved the Bank Group's capital adequacy by 1.1 percentage points. The Bank Group's capital adequacy remained at a good level, exceeding both the capital adequacy targets set internally and the regulatory requirements.
The non-life insurance company's working capital amounted to EUR 86.3 million (EUR 50.4 million), where the minimum requirement is EUR 34.0 million (EUR 34.2 million). Solvency amounted to 14.4 (8.5)%.
The non-life insurance company's working capital amounted to EUR 18.4 million (EUR 22.7 million at 1 January 2009), where the minimum requirement is EUR 13.1 million. Solvency capital was EUR 43.6 million (54.1% at 1 January 2009) and a risk carrying capacity of 72.4% (90.3% at 1 January 2009) was reported.
Capital adequacy for the conglomerate amounted to 157.4% (135.2%). The statutory minimum stipulated in the Act on the Supervision of Financial and Insurance Conglomerates is 100%.
Rating Aktia Bank plc's credit rating by the international credit rating agency Moody's Investors Service remained at the best classification, P-1, for short-term borrowing as at 6 January 2010. The credit rating for long-term borrowing is A1 and that for financial strength C. All ratings have a stable outlook.
See http://www.aktia.fi/aktia_bank/rating
The covered bonds issued by subsidiary Aktia Real Estate Mortgage Bank plc have a Moody's credit rating of Aa1. Valuation of financial assets Value changes reported via income statement For shares and participations, a value impairment is reported in the income statement where the value change has been announced as significant or long-term and, in the case of interest-bearing securities, where the issuer has announced an inability to pay. For interest-bearing securities, previous write-downs are reversed in the income statement and for shares and participations in the fund at fair value.
During the year, write-downs totalled EUR 24.0 million (EUR 39.2 million) and EUR 1.6 million in the fourth quarter.
Of these write-downs, EUR 9.6 million (EUR 29.4 million) can be attributed to shares and participations in the investment portfolio of the life insurance company and EUR 14.4 million (EUR 8.8 million) to interest-bearing securities, of which EUR 0.4 million (EUR 3.6 million) was related to the bank's liquidity portfolio. The share risk in the life insurance company's investment portfolio has been deliberately reduced and direct shareholdings amounted to EUR 0.2 million (EUR 37.8 million) at the end of the year. No write-downs have been implemented within the non-life insurance company's investment portfolio during the year.
Write-downs on financial assets -------------------------------------------------------------------------------- | EUR million | 1-12 2009 | 1-12 2008 | -------------------------------------------------------------------------------- | Interest-bearing securities | | | -------------------------------------------------------------------------------- | Banking business | 0.4 | 3.6 | -------------------------------------------------------------------------------- | Life Insurance business | 14.0 | 5.1 | -------------------------------------------------------------------------------- | Non-life insurance business | - | - | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Shares and participations | | | -------------------------------------------------------------------------------- | Banking business | - | 1.0 | -------------------------------------------------------------------------------- | Life Insurance business | 9.6 | 29.4 | -------------------------------------------------------------------------------- | Non-life insurance business | - | - | -------------------------------------------------------------------------------- | Total | 24.0 | 39.2 | --------------------------------------------------------------------------------
Value changes reported via the fund at fair value A value impairment that is not reported in the income statement or an increase in the value of financial assets that has not been realised is reported via the fund at fair value. Taking cash flow hedging for the Group into consideration, the fund at fair value amounted to EUR 43.3 million after deferred tax compared to EUR -36.4 million as at 31 December 2008. The cash flow hedging which comprises the market value for interest rate derivative contracts which have been acquired for the purposes of hedging the banking business' net interest income amounted to EUR 21.4 million (EUR 12.4 million).
Specification of the fund at fair value -------------------------------------------------------------------------------- | EUR million | 31.12.2009 | 31.12.2008 | Change | -------------------------------------------------------------------------------- | Shares and | | | | | participations | | | | -------------------------------------------------------------------------------- | Banking business | 3.7 | -1.5 | 5.2 | -------------------------------------------------------------------------------- | Life insurance | 0.2 | -2.9 | 3.1 | | business | | | | -------------------------------------------------------------------------------- | Non-Life insurance | -0.2 | - | -0.2 | | business | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Direct | | | | | interest-bearing | | | | | securities | | | | -------------------------------------------------------------------------------- | Banking business | 13.3 | -26.3 | 39.5 | -------------------------------------------------------------------------------- | Life insurance | 5.6 | -18.2 | 23.8 | | business | | | | -------------------------------------------------------------------------------- | Non-Life insurance | -0.8 | - | -0.8 | | business | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Cash flow hedging | 21.4 | 12.4 | 9.0 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fund at fair value, | 43.3 | -36.4 | 79.7 | | total | | | | --------------------------------------------------------------------------------
Write-downs of loan and guarantee claims In 2009, the financial crisis translated into a downturn in the economy, which led to write-downs primarily on corporate loans. In total, write-downs based on individual examination amounted to EUR -33.1 million (EUR -1.2 million). Reversals of previous write-downs came to EUR 2.1 million (EUR 0.5 million) so that the cost effect on the profit for the period was EUR -31.1 million (EUR -0.7 million). Write-downs during the fourth quarter totalled EUR -6.6 million.
Of write-downs with impact on costs, EUR -29.9 million was accounted for by corporate loans, which corresponds to 3.8% (0.02%) of the total corporate lending. Write-downs with impact on costs of household loans amounted to EUR -1.1 million, EUR -0.7 million of which was accounted for by unsecured consumer loans. The year's write-downs with impact on costs of household loans was equivalent to 0.02% (0.01%) of total lending to households. Total write-downs with cost impact for the year amounted to 0.51% (0.01%) of total lending.
In addition to individual write-downs, group write-downs were made for households and small companies, where there were objective reasons to believe there was uncertainty in relation to the repayment of claims in underlying credit portfolios. Group write-downs for households and small companies remained unchanged and amounted to EUR -7.4 million at the end of the period.
The Group's risk management Risk exposure The banking business includes Retail Banking and the financing companies, Corporate Banking, Treasury and Asset Management. Life insurance business is carried out by Aktia Life Insurance, and non-life insurance business by Aktia Non-Life Insurance.
Lending-related risks within banking The credit stock maintained good quality despite the downturn in the economy.
The credit stock increased over the year by EUR 635 million or 11.7%, totalling EUR 6,061 million (EUR 5,426 million) at the year-end. As planned, this increase mainly occurred within household financing and households' share of the total credit stock amounted to EUR 4,924 million or 81.2% or 86.0% when combined with housing associations at the end of year. Of these loans to households, 86.2% (86.2%) are secured against adequate real estate collateral in accordance with Basel 2. The housing credit stock totalled EUR 4,598 million (EUR 4,036 million), of which mortgages granted by Aktia Real Estate Mortgage Bank plc made up EUR 2,498 million (EUR 1,968 million). In all, housing loans increased by 13.9% over the year.
New lending to companies remained moderate and corporate loans fell by 2.7% from the beginning of the year, totalling EUR 782 million (EUR 804 million). The proportion of the total credit stock accounted for by corporate loans fell as planned to 12.9%
Lending to the general public secured by collateral objects or unsecured within the framework of the financing companies Aktia Corporate Finance and Aktia Card & Finance totalled EUR 84.8 million (EUR 63.0 million), representing 1.4% of total lending.
Credit stock by sector -------------------------------------------------------------------------------- | EUR million | 31.12.2009 | 31.12.2008 | Change | Percentage | -------------------------------------------------------------------------------- | Corporate | 782 | 804 | -22 | 12.9 | -------------------------------------------------------------------------------- | Housing | 289 | 220 | 69 | 4.8 | | associations | | | | | -------------------------------------------------------------------------------- | Public sector | 10 | 12 | -2 | 0.2 | | entities | | | | | -------------------------------------------------------------------------------- | Non-profit | 55 | 47 | 9 | 0.9 | | organisations | | | | | -------------------------------------------------------------------------------- | Households | 4,924 | 4,343 | 581 | 81.2 | -------------------------------------------------------------------------------- | Total | 6,061 | 5,426 | 635 | 100.0 | --------------------------------------------------------------------------------
Loans with payments 1-30 days overdue fell during the year from 3.40% to 2.97% of the credit stock, including off-balance sheet guarantee commitments. Loans with payments 31-90 days overdue fell from 0.87% to 0.76%, totalling EUR 46 million. Non-performing loans more than 90 days overdue, including claims on bankrupt companies and loans for collection, totalled EUR 34 million, corresponding to 0.56% (0.48%) of the entire credit stock plus bank guarantees.
Undischarged debts by time overdue (EUR million) -------------------------------------------------------------------------------- | Days | 31.12.2009 | % of the | 31.12.2008 | % of the | | | | credit stock | | credit stock | -------------------------------------------------------------------------------- | 1-30 | 181 | 2.97 | 187 | 3.40 | -------------------------------------------------------------------------------- | of which | 114 | 1.86 | 110 | 2.01 | | households | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 31-89 | 46 | 0.76 | 48 | 0.87 | -------------------------------------------------------------------------------- | of which | 37 | 0.61 | 34 | 0.63 | | households | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 90- | 34 | 0.56 | 26 | 0.48 | -------------------------------------------------------------------------------- | of which | 18 | 0.30 | 16 | 0.29 | | households | | | | | --------------------------------------------------------------------------------
Credits past due but not impaired (EUR million) -------------------------------------------------------------------------------- | | 31.12.2009 | 31.12.2008 | -------------------------------------------------------------------------------- | Days | Book | % of the | Fair | Book | % of the | Fair | | | value | credit | value of | value | credit | value of | | | | stock | collater | | stock | collatera | | | | | al | | | l | -------------------------------------------------------------------------------- | 1-30 | 181.3 | 2.99 | 166.0 | 185.5 | 3.42 | 166.6 | -------------------------------------------------------------------------------- | 31-89 | 46.1 | 0.76 | 44.1 | 47.5 | 0.88 | 45.4 | -------------------------------------------------------------------------------- | 90- | 30.4 | 0.50 | 27.4 | 25.4 | 0.47 | 19.3 | --------------------------------------------------------------------------------
The Group's financing and liquidity risks The financing and liquidity risks are dealt with at legal company level, and there are no financing commitments between the Bank Group (Aktia Bank plc and its subsidiaries) and the insurance companies.
Within the banking business, financing and liquidity risks are defined as the availability of refinancing plus the differences in maturity between assets and liabilities. The objective in the Bank Group is to be able to cover one year's refinancing requirements using existing liquidity. The liquidity status has been stable despite continued financial uncertainty and at the year-end financial assets were at a level that meets refinancing requirements for approximately 16 months.
Within the life insurance business, liquidity risks are defined as the availability of financing for paying out claims, savings sums and surrenders, and pensions. The need for liquidity is satisfied mainly through the inward flow of cash and a portfolio of investment certificates which has been adapted in line with varying needs. Any unforeseen significant need for liquidity is taken care of through the liquid portfolio (primarily bonds).
Within the non-life insurance business, liquidity risks are defined as the availability of financing for paying out claims and depend on the number of claims and their scale. Liquidity risks are managed through the inward flow of cash plus an adapted portfolio of bank deposits, investment certificates and government bonds.
Counterparty risks Counterparty risks within Group Treasury's liquidity management operations The banking business' liquidity portfolio, which comprises interest-bearing securities and is managed by Group Treasury, stood at EUR 2,615 million (EUR 2,290 million) as at 31 December 2009. Only the most solid international banks are accepted as counterparties. In addition, maximum exposure limits have been established for each counterparty and asset type. Individual investment decisions are made in accordance with an investment plan in place and are based on careful assessment of the counterparty.
Counterparty risks arising in relation to liquidity management and entry into derivative contracts are managed through conservative allocation and the requirement for high-level external ratings (minimum A3 rating from Moody's or equivalent). Counterparty risks in derivative trading are managed through the requirement for a CSA agreement.
Of the financial assets available for sale, 55% (49%) were investments in covered bonds, 29% (45%) were investments in banks, 10% (3%) were investments in state-guaranteed bonds and approximately 6% (3%) were investments in public sector entities and companies. Of these financial assets, 1.7% (0.9%) did not meet the internal rating requirements. As a result of a reduced credit rating, four security assets with a total market value of EUR 18 million were no longer eligible for refinancing with the central bank. Other securities that are not eligible for refinancing and are unrated, totalled EUR 27 million.
During the period, write-downs totalling EUR -0.4 million were realised as a result of the issuer announcing its inability to pay.
Rating distribution for banking business -------------------------------------------------------------------------------- | | 31.12.2009 | 31.12.2008 | -------------------------------------------------------------------------------- | EUR million | 2 615 | 2 290 | -------------------------------------------------------------------------------- | Aaa | 55.1 % | 49.4 % | -------------------------------------------------------------------------------- | Aa1-Aa3 | 29.6 % | 42.3 % | -------------------------------------------------------------------------------- | A1-A3 | 11.6 % | 4.9 % | -------------------------------------------------------------------------------- | Baa1-Baa3 | 0.6 % | 0.9 % | -------------------------------------------------------------------------------- | Ba1-Ba3 | 0.2 % | 0.0 % | -------------------------------------------------------------------------------- | B1-B3 | 0.0 % | 0.0 % | -------------------------------------------------------------------------------- | Caa1 or lower | 0.0 % | 0.0 % | -------------------------------------------------------------------------------- | No rating | 2.9 % | 2.5 %* | -------------------------------------------------------------------------------- | Total | 100.0 % | 100.0 % | -------------------------------------------------------------------------------- *) Of which 1.9% municipalities at 31 December 2009 and 0.2% at 31 December 2008
