Financial statements 2018: Ilmarinen is responsible for the earnings-related pension cover of 1.2 million finns
Finland’s largest employment pension insurance company Ilmarinen is responsible for the earnings-related pension cover of 1.2 million Finns. EUR 5.7 billion was paid in pensions. The stock price fall in the final quarter of the year pushed investment returns down to –1.4 per cent.
Ilmarinen’s premiums written in 2018 increased to EUR 5.4 billion. At the end of the year, more than 73,000 companies with more than 625,000 insured employees, and more than 74,000 self-employed persons had chosen Ilmarinen as their pension insurance company. The insurance portfolio was strengthened by OP Financial Group’s decision to transfer its personnel’s statutory pension insurance from the OP-Eläkekassa pension fund to Ilmarinen as of 31 December 2018.
“2018 was a historical year for Ilmarinen. In the beginning of the year, we merged with Etera, forming Finland’s largest employment pension company in charge of the earnings-related pension cover of close to 1.2 million Finns. We are working to make the new Ilmarinen an even more customer-focussed, efficient and attractive earnings-related pension partner,” says Jouko Pölönen, Ilmarinen’s President and CEO.
The implementation of the integration progressed according to plan during the year. The integration costs and the write-downs of duplicative IT systems burdened the loading profit for 2018 by around EUR 23 million. The loading profit was EUR 30 million and the ratio of operating expenses to expense loading components available for them, measuring cost-effectiveness, was 83.2 per cent.
“The synergies gained through the merger will result in improved cost-effectiveness and, in turn, even better client bonuses for upcoming years. The target set for the merger – savings of at least EUR 20 million in total expense loading – will likely be achieved as planned in 2020. The savings in expense loading will be returned to our customers in full. As for the costs related to investment operations, the synergy target of EUR 20 million will be achieved already this year,” Pölönen says.
The client bonuses for 2018 are EUR 120 million, which is 0.6 per cent of the customer companies’ total payroll.
Increase in disability pension applications
In 2018, Ilmarinen paid EUR 5.7 billion in pensions to around 460,000 pensioners.
New pension decisions totalled close to 34,000. The first years-of-service pensions, intended for those with a long, strenuous career, started in 2018. During the year, Ilmarinen made 16 decisions concerning the new pension type. The popularity of this pension type is expected to grow in the next few years as the retirement age gradually rises. The other new pension type that came out of the pension reform, the partial early old-age pension, established itself as a popular option. We made 2,687 decisions concerning it in 2018.
Last year, Ilmarinen paid approximately EUR 500 million in disability pensions, which was 8.7 per cent of the total pension expenditure. The number of disability pension applications grew 9 per cent. The majority of the disability pension applications were based on an illness related to mental health, and the increase in mental health causes was greatest among those aged under 40. In relative terms, disability pension applications increased most among those over 60. In this age group, the most common cause for applying for disability pension was a musculoskeletal disease.
Ilmarinen supports the management of disability risks in its client companies through systematic and goal-oriented co-operation. A total of 3,200 projects to support work ability were carried out in 2018 together with customer companies. These projects covered around 176,000 employees insured with Ilmarinen, costing a total of EUR 5.9 million. In addition, Ilmarinen organised 54 training sessions to support work ability management throughout Finland, attracting 3,100 people.
The extension of careers is also supported through vocational rehabilitation. Altogether more than 9,400 decisions related to various rehabilitation benefits were made in 2018.
The last months of the year were a challenging time for investment markets
The return on Ilmarinen’s investments was –1.4 per cent and the value of the company’s investment assets at year-end stood at EUR 46.0 billion.
“Global economic growth was brisk in 2018, although the expanding trade war and tightening monetary policy weakened the outlook. Until September, performance in all asset classes was essentially positive, but in the final quarter, equity markets broadly took a downward turn,” says Pölönen.
At year-end, equity investments accounted for 43 per cent of Ilmarinen’s investment portfolio and their total return was –3,6 per cent. Investments in listed equities and shares fell clearly into negative territory as a result of the late-year stock price decline in all the main market areas. In turn, investments in unlisted equities and shares and private equity investments performed well.
At year-end, fixed income investments, i.e. bonds, fixed income funds, other financial market instruments and loan receivables accounted for 38 per cent of Ilmarinen’s investment portfolio and their total return was 0,0 per cent.
Real estate investments performed well, at 6.0 per cent. In real estate investments, Ilmarinen continued to diversify onto the international real estate markets, in accordance with its strategy. During the year, Ilmarinen made new investments in office properties in the United States, Germany, the Netherlands and Luxembourg. At year-end, real estate investments accounted for 13 per cent of Ilmarinen’s investment assets, i.e. EUR 6.1 billion, of which international real estate investments made up roughly a quarter.
Long-term investment returns and solvency at a good level
Ilmarinen’s annual average return since 1997 has been 5.6 per cent, which corresponds to a real return of 4.0 per cent. This clearly exceeds the current 3.0 per cent return assumption used by the Finnish Centre for Pensions in its long-term calculations.
The solvency ratio fell to 124 per cent due to the merger and low investment income. The solvency capital at year-end amounted to EUR 8.9 billion.
“Our solvency continues to be on a good level, allowing us to take investment risks in line with Ilmarinen’s long-term investment strategy,” Pölönen says.
Ilmarinen has monitored the carbon footprint of its equity portfolio since 2015. At the end of 2018, the carbon intensity of the direct listed equity portfolio was 265 tonnes of carbon dioxide equivalents per million euros of net sales. This was 31 per cent less than the benchmark index. Ilmarinen received global recognition for its promotion of responsible investment. Ilmarinen was ranked in the top ten in AODP’s international investor comparison, and the company’s Sustainability Report came second in the competition organised by the international publication Responsible Investor.
The key risks affecting Ilmarinen’s operations and the earnings-related pension system are related to the development of employment and payroll, uncertainty in the investment market and the development of demographics and the birth rate, which has been exceptionally low in recent years.
For more information, please contact:
Jouko Pölönen, President and CEO, tel. +358 50 1282
Mikko Mursula, Deputy CEO, Investments, tel. +358 50 380 3016
Jaakko Kiander, Chief Communications Officer, +358 50 583 8599
Ilmarinen’s financial statements 2020: Solvency strengthened further despite the coronavirus crisis, efficiency improved substantially
The return on Ilmarinen’s investments was 7.1 per cent as the coronavirus crisis was shaking the markets. The value of investment assets increased to an all-time high, more than EUR 53 billion, and solvency strengthened. Operating expenses decreased by 9 per cent.
Ilmarinen’s Interim Report 1 January–30 September 2020: Return on investments turned positive, cost-effectiveness of operations continued to improve
The return on Ilmarinen’s investment portfolio was 1.1 (8.2 per cent), i.e. EUR 0.6 (3.7) billion. The third-quarter investment portfolio return was 3.2 per cent, driven by the continued positive development in the investment markets. At the end of September, the market value of investments stood at EUR 50.3 billion (31 Dec 2019: EUR 50.5 billion).
Ilmarinen’s interim report 1 January–31 March 2020: The coronavirus pushed investment returns 7.5% below zero, cost-effectiveness improved further
Ilmarinen’s Q1 total result slid into negative territory, to EUR -2,649 million (EUR 744 million in 1 Jan–31 Mar 2019), due to the low return on investments resulting from the coronavirus pandemic. Operating expenses decreased EUR 4 million and the ratio of operating expenses to expense loading components improved to 69.0 (71.5) per cent.
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