Ilmarinen in 2019: Decade's best investment return, continued growth and improved efficiency
Ilmarinen’s return on investments was 11.8 per cent, the value of investment assets rose to more than EUR 50 billion and solvency strengthened. The customer base grew, costs decreased, cost-effectiveness improved and client bonuses will rise to a record level. The Financial Supervisory Authority specified the guidelines concerning the management of disability risk, due to which Ilmarinen will initiate co-determination negotiations related to these plans.
“2019 was an excellent year for Ilmarinen. We updated our strategy and renewed our organisation. The Incomes Register was taken successfully into use and we increased the efficiency of our operations. The decade’s best investment return strengthened our solvency, which, together with our rapidly improved cost-effectiveness, will benefit our customers. Client bonuses will rise to a record level of EUR 164 (120) million,” says Ilmarinen’s President and CEO Jouko Pölönen.
Thanks to a strong investment result, Ilmarinen’s total result amounted to EUR 2.0 (–1.6) billion. In 2019, premiums written stood at EUR 5.8 (5.4) billion. Net customer acquisition was EUR 204 million. At the end of the year, more than 70,000 employers had chosen Ilmarinen as their pension provider, and 610,000 employees and 76,000 self-employed persons were insured with the company.
In 2019, Ilmarinen paid EUR 6.1 (5.7) billion in pensions to around 460,000 pensioners. The company issued more than 36,000 new pension decisions, and its customers received their pension decisions faster than before. At the same time, customer satisfaction improved.
The implementation of the integration progressed according to plan during the year, and the synergy benefits from the merger carried out two years ago could be seen as a decline in operating expenses. Loading profit improved to 55 (30) million and the ratio of operating expenses to expense loading components, measuring cost-effectiveness, improved to 70 (83) per cent.
Equity market rose strongly, all main asset classes yielded good returns
Ilmarinen’s return on investments was 11.8 (–1.4) per cent, or a record EUR 5.4 billion, and the value of investment assets rose to EUR 50.5 (46.0) billion.
“Ilmarinen’s investment result was the decade’s best. All main asset classes yielded good returns, outperforming expectations. Economic growth slowed down during the year, but the lightening monetary policy depressed interest rates and stock prices rose strongly across the world,” Pölönen says.
Of the main asset classes, equity investments generated the best returns. At year-end, they accounted for 47 per cent of Ilmarinen’s investment portfolio and their total return was 20.8 (–3.6) per cent.
Fixed income investments, i.e. bonds, fixed income funds, other financial market instruments and loan receivables accounted for 33.7 per cent of Ilmarinen’s investment portfolio and their total return was 4.7 (0.0) per cent.
Real estate investments also generated excellent returns, at 8.4 (6.0) per cent. At year-end, 12.7 per cent of Ilmarinen’s investment assets were in real estate investments, of which international real estate investments made up roughly a quarter. As a responsible real estate owner, Ilmarinen continued its environmental rating programme, and a total of eight properties were granted environmental certification. Ilmarinen received the Finnish Association of Building Owners and Construction Clients Rakli’s Developer of the Year award for its long-term development and sustainability work.
Ilmarinen’s annual average return since 1997 has been 5.8 per cent, which corresponds to a real return of 4.3 per cent. This clearly exceeds the current 2.5 per cent real return assumption used by the Finnish Centre for Pensions in its long-term calculations.
The solvency ratio strengthened to 127 (124) per cent, thanks to the good investment result. The solvency capital at year-end amounted to EUR 10.8 (8.9) billion.
Ilmarinen’s Board of Directors approved the updated Responsible Investment Policy at the end of the year. The goal is to achieve a carbon-neutral investment portfolio by the end of 2035. Ilmarinen has monitored the carbon footprint of its listed investments since 2015, striving to reduce it. Last year, the carbon intensity of the direct equity portfolio decreased by around 10 per cent and was 240 tonnes of carbon dioxide equivalents per million euros of net sales. The goals of responsible investment were furthered also in index investments. Ilmarinen participated in the market launch of three new ETFs investing in a responsible benchmark index and transferred a total of more than EUR 3 billion into these funds. The funds investing in a responsible benchmark index covered more than 70 per cent of Ilmarinen’s ETF investments.
Disability pension numbers continued to increase, work ability activities are being reorganised
The number of disability pension applications grew 7 per cent. Last year, Ilmarinen paid approximately EUR 500 million in disability pensions, which was 8.2 per cent of the total pension expenditure. Disability pensions granted for mental health reasons grew most, showing a year-on-year growth of approximately 20 per cent. Mental health disorders were, for the first time, the largest diagnosis group in the granted disability pensions.
Ilmarinen supports the management of disability risks in its client companies through systematic and goal-oriented co-operation. A total of 3,000 projects to support work ability were carried out in 2019 together with customer companies. These projects covered around 235,000 employees insured with Ilmarinen, costing a total of EUR 5.1 million.
In its supervisory entity release concerning the entire sector, the Financial Supervisory Authority specified the guidelines concerning the management of disability risk and further restricted the activities of employment pension insurance companies in this area. According to the specified guidelines, employment pension insurance companies’ disability risk management activities must be “educative in nature”. According to the Financial Supervisory Authority’s interpretation, the company’s own personnel costs in this area “must not be substantial in relation to the disability risk administrative cost component”.
Following the more detailed guidelines, Ilmarinen will renew and reduce its work ability services offering. The plan is to simultaneously renew customer account service models and reorganise operations. To implement these changes, Ilmarinen will initiate co-determination negotiations which will cover 94 employees in positions related to customer account services and disability risk management. Based on a preliminary estimate, a maximum of 40 positions can be expected to undergo material changes or be discontinued. The change is also likely to open up a considerable number of new positions, thanks to which the number of potential redundancies is expected to be much lower.
“It is regrettable for our employees, our customers and the whole of society to see that the resources allocated to the prevention of disability are being reduced. The sums spent on work ability activities are marginal compared to the cost of disability. Each disability pension prevented is not only important on a human level but it also saves our common assets. We cannot afford to let 20,000 people leave working life prematurely due to disability every year,” Pölönen says.
“We believe that by renewing our operations and focussing on the biggest risks, we will be able to provide our customers with even more impactful support for the management of disability risks in the future. The prevention of disability calls for even closer co-operation that involves employees, employers, occupational health care services and other health care actors, Kela and pension institutions,” Pölönen adds.
For more information, please contact:
Jouko Pölönen, President and CEO, tel. +358 50 1282
Mikko Mursula, Chief Investment Officer, tel. +358 50 380 3016
Liina Aulin, Executive Vice President, Communications and Corporate Responsibility, tel. +358 040 770 9400
Asset diversification and zero interest rates
Diversification across asset classes and geographically is mandatory from both risk management’s and returns’ perspectives. Traditional diversification has faced new challenges in the zero interest rate macro environment over the last years. Financial stability regulation also has a profound effect on high-return diversification possibilities in Finland’s pension system.
Ilmarinen’s Interim Report 1 January to 30 June 2021: Return on investments was 8.9 per cent, solvency capital grew to more than EUR 15 billion and customers’ payrolls started to rise
The return on Ilmarinen’s investment portfolio was 8.9% (-2.0%) or EUR 4.7 billion thanks to the strong performance of the equity markets. The market value of investments grew to EUR 57.5 (53.3) billion. The long-term average return on investments was 6.1 per cent. This corresponds to an annual real return of 4.6 per cent.
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