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.
Loading profit amounted to EUR 13 (13) million. When considering the reduction of the expense loading rate by 6.9% at the start of 2020, the comparable loading profit improved by EUR 3 million to EUR 13 million and the ratio of operating expenses to expense loading components improved by 8 percentage points to 69.0 per cent.
Premiums written in January–March were on a par with the previous year at EUR 1.5 billion (EUR 1.5 billion). Measured in premiums written, net customer acquisition was EUR 37 million (EUR 63 million). A total of EUR 1.6 billion (EUR 1.5 billion) in pensions was paid to 460,000 pensioners.
The return on Ilmarinen’s investment portfolio was -7.5 per cent (4.6 per cent), i.e. EUR -3.8 billion (EUR 2.1 billion). At the end of March, the market value of investments stood at EUR 46.4 billion (31 Dec 2019: EUR 50.5 billion).
The long-term average nominal return on investments was 5.4 per cent, corresponding to a 3.9 per cent annual real return.
Due to the negative investment return, solvency capital declined to EUR 8,112 (10,792) million. The solvency ratio was 120.7 (126.6) per cent.
Change in outlook: The Finnish economy is expected to slide into a deep recession, as a result of which unemployment is expected to rise and the payroll and premiums written are expected to decline substantially. The declining payroll will also reduce Ilmarinen’s loading income and thus the loading profit and the ratio of operating expenses to expense loading components during the remainder of the year.
President and CEO Jouko Pölönen:
“The coronavirus pandemic had an impact on Ilmarinen’s Q1 return on investments, which fell into negative territory, to minus 7.5 per cent. At the onset of the crisis, Ilmarinen’s solvency was strong, and the buffers that have accumulated over a long period of time secure pension assets also in tough times. Finns do not need to be worried about their pensions: the payment of pensions is secured also during emergencies. The impacts of the crisis will be felt in the pension system in the form of lower investment returns and premiums written due to falling employment rates and the flexibility granted for the payment of earnings-related pension contributions.
In January–March, Ilmarinen’s return on investments was -7.5 per cent. With the coronavirus crisis, stock prices took a sharp plunge on all markets, which pushed the return on equity investments down to -12.8 per cent. The return on fixed income investments also was clearly negative, at -6.9 per cent, due to the widening of credit risk margins. The long-term average nominal return on investments since 1997 was 5.4 per cent, corresponding to a 3.9 per cent annual real return.
The solvency ratio declined to 120.7 per cent, but is still clearly higher than the regulatory requirements. The solvency buffers built up through long-term funding and investing protect pension assets during market volatility. When it comes to the whole pension system, however, it is important to ensure that the sudden slump in the stock market does not lead to a situation where pension companies would be forced to sell their equity investments at low prices to reduce risk.
The coronavirus outbreak and the containment measures have been detrimental especially to companies and entrepreneurs in the tourism, restaurant and services sector, but there will be negative business and economic impacts across a wide array of sectors. Together with other pension companies and the authorities, we quickly prepared a change which allows for a three-month extension on the term of payment for statutory earnings-related pension contributions to ease the situation of our customer companies. In addition, employers’ earnings-related pension contribution will be temporarily reduced by 2.6 percentage points during 1 May–31 December 2020 in accordance with the agreement concluded between the labour market organisations. No client bonuses will be paid for the duration of the reduction. In the properties owned by Ilmarinen, business tenants were granted flexibility for payment terms and restaurant operators were exempted from rent during the lockdown imposed by parliament.
In January–March, Ilmarinen’s premiums written stood on the previous year’s level, at EUR 1.5 billion. They are, however, expected to fall due to declining employment and the reduction of employers’ earnings-related pension contributions. Demand for TyEL premium loans has started to grow, putting more pressure on liquidity along with the deferrals and reductions of earnings-related pension contributions.
So far, the coronavirus crisis has had no significant operational impacts on Ilmarinen. Most of Ilmarinen’s employees started working from home as recommended. Customer service is available as usual via phone and chat, and the payment of pensions can be secured even in exceptional situations. We paid a total of EUR 1.6 billion in pensions to 460,000 pensioners in the first quarter. In January–March, we made just over 10,000 new pension decisions.
Strong development in cost-effectiveness continued in Q1. Operating expenses declined EUR 4 million from the comparison period and the ratio of operating expenses to expense loading components improved to 69 per cent despite the 6.9-per-cent reduction in the expense loading rate. The economic downturn caused by the coronavirus outbreak is expected to reduce employment and payroll especially during the second quarter of the year, which will weaken the full-year ratio of operating expenses to expense loading components.
For our society as a whole, it is now very important to use every possible means of controlling the virus in order to shorten the duration of the epidemic and the lockdown measures. Both public and private resources must come into play in this situation. During an emergency state, securing the safety and health of people takes the highest priority. The prolongation of the epidemic has very serious economic, social and health consequences. The faster we can lift the restrictions paralysing our society, the fewer bankruptcies and the less unemployment and indebtedness of households, businesses and the public sector there will be. There is a risk of a rapid increase in the social consequences of social distancing: passivity, lack of physical activity, alcoholism and mental health problems. Disability rates have recently been on the rise anyhow, and it is worrisome for society at large if the situation continues to worsen.”
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.
Specialist of the Month: Gerald Esono
At Ilmarinen, we take care of the pension security of more than a million Finns. For almost 60 years we have worked together with employers to create a better working life and promote work ability. But who are the people doing this work? Read on to see what our Specialist of the Month Gerald Esono has to say about his work.
Ilmarinen’s Interim Report 1 January to 31 March 2021: Return on investments was 4.8 per cent, solvency and net customer acquisition strengthened
The return on Ilmarinen’s investment portfolio was +4.8% (-7.5%) or EUR 2.5 billion thanks to the positive performance of the equity markets. The market value of investments grew to EUR 55.4 (53.3) billion. The long-term average return on investments was 6.0 per cent. This corresponds to an annual real return of 4.5 per cent.
Ilmarinen became a seed investor in a new Low Carbon Fund with 170 million euros
Ilmarinen has become a seed investor in AXA IM’s new mutual fund, the AXA WF US High Yield Low Carbon Bonds Fund, with 170 million euros. The fund is one of the first of its kind globally. The fund’s investment approach is fully ESG integrated and particularly focused on the carbon and water intensity scores of issuers. The investment is part of Ilmarinen’s overall responsible investment strategy.
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