Stefnir hf. is Iceland’s largest fund manager with assets of approximately ISK 347 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 invested in mutual funds, investment funds or institutional investor funds, and Stefnir has also entered agreements with a number of partnerships limited by shares. Stefnir had 18 employees at the end of 2017.
Assets under management decreased by approximately ISK 61 billion during the year, from ISK 408 billion to ISK 347 billion. The main factor in this regard was the ISK 30 billion decrease at the institutional investor fund ABMIIF. Other factors included payments from alternative investments in connection with the closure of major investment projects, and redemptions in the investment fund Stefnir ÍS-15. The company's focus on developing alternative investments in recent years has yielded more diverse income streams and a higher margin. Assets under management are well distributed between asset classes and the company’s revenue structure is consistent with the board's objectives.
Stefnir – Savings Fund: a new investment option for individual and institutional investors
Stefnir has pioneered the development of new products for its clients. The changeable investment environment requires the company’s experts to be ready to respond to investors’ shifting focuses by offering new investment options or when managing funds. A new investment fund, Stefnir – Savings Fund, was set up during the year and it invests in deposits, commercial paper and shorter duration bonds. The new fund attracted considerable client interest and the total investment was ISK 5.4 billion by the end of 2017.
Stefnir the best asset manager in Iceland in fixed income
Stefnir was named by the magazine World Finance as the best investment management company in Iceland in fixed income category. By understanding the needs of both retail and institutional investors at that time and shifting the focus to fixed income funds, Stefnir was able to achieve healthy AUM growth and revenues despite the tough market.
Digital distribution channels the key to increased trading with Stefnir funds
During the year Arion Bank made it easier for its customers to trade with Stefnir funds. A new feature in Arion Online Banking enables unit holders to keep track of investment returns and transactions with funds can be performed very easily. The Arion app, voted the best banking app in Iceland, also facilitates a complete overview of securities portfolios. Continued development and innovation in this area will continue to be a priority in the near future.
Strategy and governance
The Center for Corporate Governance at the University of Iceland has recognized Stefnir as a company which has achieved excellence in corporate governance since 2012.
The employees and board of directors have focused on defining 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 has recognized Stefnir as a company which has achieved excellence in corporate governance since 2012. Stefnir was the first company in Iceland to be recognized 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.
Transparency is paramount and this is reflected by the emphasis on detailed fund information on the company's website.
Since 2011 Stefnir has been recognized by Creditinfo as one of the outstanding companies of the year, and it is pleasing that the company is considered to be one of those contributing to the development of the Icelandic business sector.
The company 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.
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 appetite for a diverse range of investment options and Stefnir has met this demand with a variety of products suited to institutional investors' portfolios. Stefnir operates and manages both Icelandic and international venture capital funds and the major owners of the funds are pension funds, insurance companies and other financial institutions. The private equity fund SIA III completed its second investment by acquiring a 70% interest in Gámathjónustan hf. and SIA II slhf. delivered the fund’s holding in Skeljungur to shareholders in November 2017, bringing to a successful conclusion the fund's four year involvement in Skeljungur.
Access to international markets through Stefnir funds
Stefnir occupies a strong position as a manager of international equity funds in Iceland. The company employs an experienced team of experts to monitor economic developments and international listed companies and their approach to fund management has long attracted attention. Now that rules on investing in international financial instruments have been relaxed, there is a great opportunity for individual and corporate investors to spread risk by investing in international financial instruments. International funds managed by Stefnir are an attractive option for diversifying risk for Icelandic investors and savers.
Valitor is an international payment solution company that helps partners, merchants and consumers make and receive payments. Leveraging 35 years of experience, Valitor provides issuing, acquiring and gateway services to partners and merchants across Europe. The company’s international business has grown strongly during the last few years. Revenue from activities outside Iceland grew by 50% in 2017 and now represent around 70% of Valitor’s total revenue. The company’s total revenue grew by 32% year-on-year despite the appreciation of the króna.
At the end of 2017 Valitor and its subsidiaries had 360 employees in six offices in Iceland, the UK and Denmark. A key component of Valitor's success has been its focus on developing its own software solutions and processing platforms, both for acquiring and issuing services, and eCom and in-store payment gateways. This has enabled Valitor to differentiate itself in a highly competitive payments market.
Highlights of 2017
Valitor continued to execute its focused and differentiating strategy for acquiring and issuing, which involves development and growth through partners in Iceland and Europe, and with direct end-to-end services to the market through merchant acquiring in Iceland and via subsidiaries in the UK and Nordics.
Valitor made two highly strategic acquisitions during the year.
Valitor made two highly strategic acquisitions during the year. In April, Valitor acquired IPS (International Payments Services Limited), a UK-based company that specializes in providing a payment terminal (POS) gateway for pan-European retailers. The sales and services part of IPS has been merged with AltaPay, Valitor’s e-commerce gateway, to provide state-of-the art Omni channel payment solutions, helping retailers sell more by providing them with a clear view on payments made through their sales channels, e.g. e-com, in-store or mobile, and offer their customers the same user experience regardless of the sales channel they choose to use.
In July, Valitor acquired Chip & PIN Solutions, one of the premier and highly regarded ISOs (Independent Sales Organizations) in the UK, selling POS terminals and acquiring services to small and medium-sized merchants. Back in 2014, Valitor founded Markadis to sell payment solutions directly to UK customers. In the autumn the operation of Markadis was merged with Chip & PIN Solutions. The combined company has over 8,000 customers.
To facilitate its rapid growth, Valitor has made significant investments in scaling its core payment processing platforms.
To facilitate its rapid growth, Valitor has made significant investments in scaling its core payment processing platforms. On A similar note, Valitor is constantly seeking to strengthen its operations and international talent pool, and made some key recruitments in 2017 and added international industry business leaders to its management team.
The company faced some challenges in 2017. The majority of Valitor’s revenue is in international currencies. With the strong Icelandic króna, the home currency, the revenue was negatively impacted yet again in 2017. Furthermore, annual salary hikes in Iceland over the last few years have increased the cost base, also affecting profitability.
A new strategy was approved by the board of directors in December, where the key emphasis is on leveraging the competitive advantages that Valitor has in the Direct channel, a strong value proposition for SME (small and medium-sized) businesses in Iceland, the UK, Ireland and Denmark, and the unique Omni channel proposition for pan-European retailers.
Never in the history of payments has there been as much technological change and advancement as in the last few years, which will continue to shape and shift the industry for some time to come. Competition is increasing with downward pressure on margins in all markets. Regulation is also shaping the industry in many ways; European PSD2 (Payment Services Directive) and GDPR (General Data Protection Regulation) are effective in 2018 and will drive innovation and have an impact on various roles in the payments value chain and on industry forces affecting competitiveness, all for the ultimate benefit of consumers, whose behaviour and preferences have changed.
A new strategy was approved by the board of directors in December, where the key emphasis is on leveraging the competitive advantages that Valitor has in the Direct channel, a strong value proposition for SME (small and medium-sized) businesses in Iceland, the UK, Ireland and Denmark, and the unique Omni channel proposition for pan-European retailers.
The primary components of Valitor’s strategy going forward are:
- Invest for growth – significant increase in R&D and sales and marketing activities
- Increased focus on Direct channel – to become the preferred Omni channel payment solutions provider for pan-European companies
- Develop and bring new and differentiating products to market
- Differentiate on customer intimacy – service excellence and IT service levels
A key factor in Valitor’s success is the strategy of developing its own payments issuing and acquiring platforms and related payment solutions, that enable the company to differentiate when helping merchants and cardholders make payments and to make buying and selling easy. Valitor will continue increasing its investment in R&D and bring differentiating products to market in 2018.
Valitor has always been concerned with corporate social responsibility, both in regard to its internal and external activities. In 2016, Valitor signed an agreement with the Iceland Carbon Fund to offset air travel and company car use in the coming years. Green procurement standards that are guided by sustainability considerations with suppliers and service providers have been implemented. And in 2017 Valitor partnered with Klappir Grænar Lausnir hf. with a solution addressing energy consumption and the mapping of our eco-footprint.
Through Valitor’s Community Fund, the company continued to support important projects and issues in the community in 2017 as it has for the past 26 years.
The Icelandic Financial Supervisory Authority (FME) conducted a detailed review of Valitor’s measures against money laundering and terrorist financing (AML program audit), and concluded that Valitor was generally in good order and the regulator believes the management of Valitor has the right attitude towards supervision and guidance.
With a solid foundation, sound strategy and ability to execute, Valitor has all the building blocks squarely in place to be successful in the future.
Vördur is a universal insurance company offering insurance at competitive prices to individuals, families and corporate customers. At the end of 2017 Vördur had 94 employees in 88 full-time positions and more than 60,000 customers.
The year 2017 was an eventful period for Vördur. The company came under new ownership in the autumn of 2016 when it was acquired by Arion Bank. Last year was therefore the first year of operations under new owners. During the first few weeks and months of the year, the company adjusted itself to the focuses of the new owners, launched its sales partnership and mapped potential areas of growth.
The merger creates a stronger group and an excellent platform for future growth.
On the first day of 2017, the merger between Okkar Life Insurance and Vördur Life Insurance came into effect under the brand name of the latter. The merger created Iceland’s largest life insurance company. The next step was to move the business and the entire staff to a single site at Vördur's headquarters at Borgartún 25. Substantial changes needed to be made to the premises and this was completed in early March. Thorough planning was key to the merger and the move, and the entire process went without a hitch. The positive attitude of the employees also helped the team quickly adjust to the new circumstances. The merger creates a stronger group and an excellent platform for future growth. It also presented opportunities to strengthen the company's infrastructure, enabling the company to effectively prepare for the demands made by the introduction of the Solvency II legislation.
In the spring the company undertook an extensive upgrade of its computer systems when the 2016 edition of NAV system was installed. The new system is more up-to-date in every way but unfortunately it took time to get up to full speed in some areas and this led to some temporary disruption of services to customers. However, these teething troubles were soon dealt with and the system is now functioning as it should.
Over the last few years we have made a great effort to compile all the company's procedures in a single comprehensive quality manual. The first edition of the manual was published during the year and it is a work in progress which requires constant updating and reviewing. The manual is designed to ensure standardization and constant improvements in the company's services. Vördur has scored highly in Gallup’s customer satisfaction survey and the company pledges to seek ways to always improve this important component of the business.
Vördur has a clear vision in equal opportunities and has established a policy to this end which guarantees equal opportunities and terms for employees of both sexes. Any kind of sexual discrimination is contrary to the company’s equal opportunities policy and equal opportunities legislation. In 2013 Vördur became the first financial institution in Iceland to gain equal salary certification from the trade union VR. This certification has been renewed by independent assessors every year since.
In the section on Vördur in Arion Bank's 2016 Annual Report, it was noted that an economic boom more often than not has a negative impact on insurance companies. Financial companies, however, often perform better under these conditions which mitigates the overall effect on results. However, since financial income can be volatile, it is important to maintain a good balance between both the insurance and financial sides of the business. Although claims frequency has not increased since the end of 2016, earnings from insurance operations were nevertheless down. The cost of repairing new vehicles has increased substantially, but the decline in earnings can be mainly attributed to the rise in wages in recent years. Wages are one of two basic criteria for determining damages relating to physical injury under the Icelandic tort damages act. It is almost impossible to generate positive results from the insurance side, if vehicle insurance, the largest single category, is run at a loss. While results from non-life insurance fell well below expectations, personal insurance operations performed well.
Tasks ahead
We will endeavour to serve our ever growing customer base by providing modern solutions in the field of digital technology and continue to develop more traditional service channels.
Every year we set ambitious targets to grow the business, and 2018 is no exception. Vördur has experienced great success in recent years. We will build on the strong foundations we have created, endeavour to serve our ever growing customer base by providing modern solutions in the field of digital technology and continue to develop more traditional service channels. By doing this we want to enable our customers to contact the company around the clock and throughout the year. It is an ambitious target which will take some time to bring to fruition but we are making every effort to realize the goal.
We are also adjusting to the forthcoming implementation of new data protection legislation which will come into force in May. The new legislation is extensive and touches on many aspects of the company’s day-to-day business. A special team has been set up to oversee the implementation.
Outlook
In order to achieve good operating results, the vehicle insurance side of the business needs to deliver positive figures. We have taken action to bring about improvements but further measures are likely to be necessary. Planned changes to the law of tort make the situation even more challenging and if the working committee’s proposals are accepted, compensation for physical injury will increase sharply which will inevitably result in the further adjustment of premiums.
The current operational and ownership structure at Vördur presents the company with plenty of opportunities to expand. In the future we are aiming to deliver the best combined ratio of any Icelandic insurance company.