Stefnir hf. is Iceland’s largest fund manager with assets of approximately ISK 403 billion under active management. The company is wholly owned by Arion Bank and it is based at the Bank’s headquarters. The assets managed by the company are owned by a diverse group of investors, from private individuals to Iceland's largest institutional investors. The fund members’ assets are in mutual funds, investment funds or institutional investor funds, and Stefnir has also signed asset management agreements with a number of partnerships limited by shares. Stefnir had 24 employees at the end of 2014.
Assets under management decreased from the previous year, primarily owing to changes in Stefnir's largest institutional investor fund, ABMIIF. However, equities funds and alternative investments grew substantially during the year. Assets under management are well spread between asset classes and the company’s revenue structure has improved from year to year after this was made a priority by the company's board.
The employees and board of directors have defined the company’s core competences and focuses over the next few years. The company has a clear strategy and the board has set a performance benchmark for the company which is measured on a regular basis. The board of directors of Stefnir is committed to good corporate governance and endeavours to promote responsible behaviour and corporate culture within Stefnir for the benefit of all the company’s stakeholders. The Center for Corporate Governance at the University of Iceland confirmed in January 2012 that Stefnir was a model company in terms of good corporate governance and Stefnir is the first company in Iceland to be acknowledged in this way. The company is constantly working on maintaining and developing corporate governance and re-attaining this recognition annually is part of this effort. The company now publishes a corporate governance statement on its website once a year, describing its activities and its focuses in the near term. Transparency is paramount and this is reflected by the keen focus on detailed fund information on the company's website. This disclosure of information is far more extensive than legally required.
Transparency is paramount and this is reflected by the keen focus on detailed fund information on the company's website.
For the third year in a row Stefnir was recognized by Creditinfo as one of the outstanding companies of 2014, and it is most encouraging that the company is considered to be one of those contributing to the development of the Icelandic business sector.
The investment environment continues to be shaped by the restrictions imposed by the capital controls on foreign investment. The assets of Icelandic pension funds continued to grow and it has been a priority to develop fund products suited to pension funds, insurance companies and other institutional investors.
Returns on Stefnir funds vary depending on the asset class. Indexed bond funds have faced an uphill struggle while nominal bonds have yielded stronger returns than indexed instruments. Inflation slowed down significantly during the year which led to a sharp drop in yields and price increases on nominal bonds. Towards the end of the year the Central Bank cut its policy rates by 0.75% which led to a rise in bond prices.
Domestic equities funds managed by Stefnir had a positive year, as the Icelandic market performed well towards the end of the year and there was also an inflow of capital into the funds. Mixed funds also benefited from the strongly performing Icelandic market. Stefnir Balanced Fund merged with two smaller mixed funds during the year and now has the most unit holders of any fund in Iceland. Stefnir Balanced Fund is the oldest mixed fund in Iceland. The fund has been an attractive investment option for general investors who wish to invest their savings in different types of assets yet who do not have the expertise to move their assets around between different investments and markets. The average annual return over the last five years has been 13.9% and over the last ten years 15.8%.
Despite the capital controls, the small but growing equities market and the limited issue of corporate bonds, Stefnir has nevertheless managed to adapt to a changed environment in recent years and has emerged as a leader in the development of new products to meet the demands of a diverse group of Icelandic investors.
International equities funds managed by Stefnir are rated by the international ratings agencies Morningstar and Lipper. The funds have been assigned good ratings by these companies. At the beginning of the year all five Stefnir funds had 3 or 4 star ratings from Morningstar and one fund had the highest rating from Lipper. As a result of the strong returns generated by the funds, Icelandic investors contributed new capital to the funds during the year. The capital controls have meant that Icelandic investors have first needed to redeem capital from other international funds or from foreign assets before investing in Stefnir funds. Despite the capital controls, the small but growing equities market and the limited issue of corporate bonds, Stefnir has nevertheless managed to adapt to a changed environment in recent years and has emerged as a leader in the development of new products to meet the demands of a diverse group of Icelandic investors.
A leader in private equity investments in Iceland
Stefnir has been a leader in private equity investments and alternative investments in Iceland for many years. There is an obvious need for a diverse range of investment options and Stefnir has met this demand with a variety of products suited to investors' portfolios. The private equity funds SÍA I and SÍA II have participated in a number of major domestic projects. The insurance company Sjóvá Almennar was listed on the stock market during the year and SÍA II and an investor consortium acquired Skeljungur hf, the Faroese oil company Magn and the domestic operations of Norvík. Investments in well located commercial property via SRE II slhf, which is run by Stefnir, went well during the year and several new properties were brought into the fund's portfolio and the fund is now almost fully invested.
Valitor hf. is a leading company in the field of payment solutions. Valitor operates internationally keeping its core values, initiative, collaboration and trust constantly the focus of its operations. The company’s mission is to provide its customers with state-of-the-art solutions that offer them new opportunities. Valitor has long been a leader in services, product development and efficiency for the Icelandic payments market. International payments solutions are now an additional core element of the company's business. At the end of 2014 Valitor and its subsidiaries had 190 employees.
Valitor has long been a leader in services, product development and efficiency for the Icelandic payments market. International payments solutions are now an additional core element of the company's business.
Highlights of 2014
During the year Valitor continued to implement its strategy of expanding in the key markets of the United Kingdom and the Nordic region, particularly in e-commerce. Valitor’s subsidiary Iteron Holding Ltd established the company Markadis in the UK. Markadis offers merchant acquiring services, both for traditional over the counter payments and e-commerce. Iteron Holding DK, a subsidiary of Iteron Holding Ltd, acquired the Danish company AltaPay during the year. This marks an important milestone for Valitor, which until now has relied on internal growth. AltaPay has developed an advanced payment system for online transactions that supports many prominent merchant websites. AltaPay has offices in Copenhagen and London and employs 19 people.
Valitor’s international acquiring services grew significantly in 2014. Firstly, Valitor has stepped up its collaboration with the rapidly growing Swedish company Klarna which offers card-related services on selected markets. Secondly, Valitor expanded its partnership with Stripe for acquiring services in Europe. Stripe is a world leader offering simplified online transactions with companies such as Apple, Twitter and Facebook. Acquiring services for traditional payment cards at merchant outlets in Ireland also grew substantially during the year.
A landmark partnership began with MasterCard to issue prepaid cards in Europe. Valitor has worked with Visa in Europe in this area for the past four years. Valitor also joined forces with MasterCard and the British company Caxton FX to issue prepaid currency cards in the UK. Valitor and Caxton FX jointly issue prepaid cards which are based on a multi-currency e-wallet designed by Valitor.
A new chapter in electronic payments in this country was written when the first contactless transaction was made. Specialized Valitor payment terminals were distributed to merchants and a portal was opened for contactless credit cards and phone apps.
Valitor put the finishing touches on a new domestic card issuing system for retail banks. This system represents a milestone in services for issuers and cardholders. Valitor also signed important issuing agreements with Icelandic partner banks. A new chapter in electronic payments in this country was written when the first contactless transaction was made. Specialized Valitor payment terminals were distributed to merchants and a portal was opened for contactless credit cards and phone apps. This brings the NFC pilot project with VISA EU, Oberthur and the Icelandic banks for the introduction of contactless payments in Iceland into its final stages.
Competition issues remained high on the agenda during the year. Valitor reached a settlement with the Icelandic Competition Authority (ICA) on issues concerning the payment card market in 2007 to 2009. The ICA elected to impose fines, which is uncommon in neighbouring countries, and Valitor paid a fine of ISK 220 million. The issue revolves around changes to interchange fees. Valitor views the comprehensive changes to the Icelandic payment card system as an opportunity, particularly in terms of levelling competition between VISA and MasterCard. These modifications to the system also resulted in changes to the ownership of Valitor, where Arion Bank acquired Landsbankinn's stake in the firm.
Future prospects
Valitor has developed a valuable knowledge base, making the company highly competitive by international standards. The company sees exciting opportunities to further expand in its key overseas markets. Valitor now generates about 30% of its income from these markets and the goal is to raise this figure to 50% over the next two years. The focus will be to foster and grow with our current customers by maximizing the quality and value of the new partnerships Valitor has embarked on recently. At the same time the company is striving to add greater flexibility, security and automation to the company’s systems.
Markadis is expected to significantly strengthen its business this year. The acquisition of AltaPay will augment Valitor's product range on key markets and provide added leverage.
Markadis is expected to significantly strengthen its business this year. The acquisition of AltaPay will augment Valitor's product range on key markets and provide added leverage. AltaPay is a rapidly growing business and is expecting to add to its workforce in 2015. Issuing prepaid cards has tremendous growth potential and it is estimated that the market will grow by 15-20% annually through 2020. Valitor is a leader in Europe in terms of integrating card issuing and processing services and this creates numerous opportunities.
In Iceland Valitor will soon change service fees to merchants in line with a new arrangement on the payment card market. It is important that the reduction in interchange fees is passed on in full to consumers. Valitor will continue to develop contactless payments. Icelandic merchants now have the opportunity to upgrade their payment terminals so that their customers can use contactless technology to pay for goods and services. The future of electronic payments clearly lies in this area. More than 70 million contactless cards are now in circulation in Europe and Valitor estimates that by 2020 more than half of cashless transactions in Iceland will be contactless.
OKKAR Life Insurance hf. (OKKAR) is the oldest life insurance company in Iceland. The company was founded in 1966 by a consortium of Icelandic investors and a British insurance company under the name Althjóda líftryggingarfélagid hf. The company's main role is to offer its customers financial protection in the event of illness, disability or death, while protecting the interests of the customers and the company’s owners. OKKAR had 15 employees at the end of 2014.
From the very beginning OKKAR has been a pioneer in the development of personal insurance in Iceland. OKKAR has been at the forefront on the Icelandic market in health insurance, children’s insurance, disability insurance and a range of group insurance policies
OKKAR is an independent insurance company and its operations are divided into four divisions: Insurance, Finance, Sales & Marketing and Information Technology. OKKAR has sales and distribution partnerships with Arion Bank and Tekjuvernd ehf., which also sells pension products on behalf of Arion Bank.
OKKAR enjoyed a positive 2014 even if the financial environment was not ideal for investment. Earnings from insurance activities were strong, return on equity was 14% and the combined ratio was 84%. Investment income declined between years owing to the limited number of available investment options. The solvency ratio at the end of 2014 was 2.49.
The company achieved its targets on sales of new insurance policies during the year. Sales of a new pension product, “OKKAR séreign” which was launched in the autumn of 2012 with Arion Bank Asset Management, continued to be excellent and there was strong growth in sales of the company’s other products. The ratio of cancelled policies continued to decline, resulting in a steep increase in the total number of policies.
The operating environment has undergone great change during the year. One of the government’s measures concerning debt relief in respect of indexed mortgages involved tax-free payouts of private pensions. This reduced competition from British and German life insurance companies and some of them have now stopped selling insurance in this country.
Our main tasks at OKKAR have inevitably been linked to these changes on the market. Our main focuses have been stringent cost management, developing new products and more effective analysis of our customers’ needs. During the year life insurance was offered to Arion Bank customers when taking out a mortgage and a market campaign was launched for new a new sickness insurance policy, XL, which can be reactivated after benefits have been paid out.
At the end of 2014 OKKAR reached an agreement with the Icelandic Cancer Society to help fund a campaign to screen for bowel cancer in Iceland. Under the agreement a certain proportion of insurance policies sold in 2015 will go towards this campaign.
Outlook
The outlook for 2015 is positive. Arion Bank and OKKAR will continue to expand their range of services to customers and this partnership will remain a focal point over the coming year. The company expects a moderate increase in sales this year, both in terms of the number of policies sold and paid premiums. Despite the uncertainty in the economic environment, particularly in respect to the government’s measures on pension savings, the long-term outlook is bright, not least due to the flourishing partnership with Arion Bank.
