Pension Fennia, a Finnish insurer which guarantees defined-benefit schemes, has received approval to use credit derivatives for hedging purposes within the corporate bond portion of its investment portfolio and also has the go-ahead to use interest rate swaps to take on additional risk. The company has not yet executed either of these types of trades, said Veronica Törnwall, senior portfolio manager, fixed income in Helsinki. The company, which does not have a credit rating, has EUR3.7 billion (USD3.6 billion) in assets, of which EUR2.2 billion is in fixed income.
The insurer already uses over-the-counter interest rate swaps for hedging purposes, according to Törnwall. However, it has not yet executed interest rate options to take on risk because it still needs to put risk management procedures, such as bookkeeping, in place. Törnwall said Pension Fennia discussed taking short-term risk via swaps with a counterparty, but was unable to complete the transaction because it lacks the proper procedures. "We're working on it and of course it takes time, but we haven't been able to do it yet," she said.
Törnwall referred further queries to Eeva Grannenfelt, director, capital markets in Helsinki, who declined comment.
