Credit Risk Management
Credit risk is managed by specific limits given in the Investment Policies of If P&C and Mandatum Life. Limits and restrictions are assigned to maximum exposures towards single issuers and derivative counterparties that are mainly based on rating class and an internal assessment.
Before an investment in a new security or a transaction with a new counterparty, the credit standing of the issuer or counterparty is thoroughly assessed. Credit ratings mainly from Standard & Poor’s, Moody’s and Fitch are used to support the assessment of the creditworthiness of issuers and counterparties. The portfolio development and the counterparties’ credit standings are monitored continuously.
Credit risks are monitored at business area level and reported to the Investment Control Committee of If P&C and to the ALCO of Mandatum Life. The decision-making in each business area shall follow the limits defined in the respective Investment Policy. Credit exposures are reported by ratings, instruments and the industry sectors of issuers and counterparties.
Since credit risk is taken mainly as a part of investment operations where most of the investments are in tradable instruments, credit risk is by nature primarily spread risk and it is managed and monitored as part of market risk.
In order to mitigate derivative counterparty risks ISDA and CSA agreements are used. This is the case especially in Sampo plc and Mandatum Life. In order to limit and control credit risk associated with reinsurance, If P&C has a Reinsurance Security Policy, which sets requirements for the reinsurers’ minimum credit ratings and the maximum exposure to individual reinsurers. Similar to credit risk in investment assets, credit ratings from rating agencies are used to support the assessment of the creditworthiness of reinsurance companies.