Ilmarinen’s Interim Report 1 January to 30 June 2020: Coronavirus causes return on investments to fluctuate, cost-effectiveness of operations improved as expected
The total result for Ilmarinen’s H1 was EUR –1,099 million (EUR 931 million 1 Jan–30 Jun 2019) due to the slump in return on investments caused by the coronavirus early in the year.
Premiums written fell to EUR 2.7 billion (EUR 2.9 billion) as a result of an increase in temporary layoffs and a temporary discount in the employers’ TyEL contribution. Net customer acquisition was EUR 76 million (EUR 110 million) measured in premiums written. A total of EUR 3.1 billion (EUR 3.0 billion) in pensions was paid to 458,936 pensioners.
Operating expenses financed using loading income fell EUR 7 million and the loading profit was EUR 21 (27) million. The ratio of operating expenses to expense loading components weakened to 74 (71) per cent due to a decline of 6.9 per cent in the expense loading rate and lower loading income.
The return on Ilmarinen’s investment portfolio was –2.0 per cent (6.0 per cent), i.e. EUR –1.0 billion (EUR 2.7 billion). Ilmarinen quickly recovered from the dramatic early-year plummet and the Q2 return on the investment portfolio rose to 5.9 per cent. At the end of June, the market value of investments stood at EUR 48.8 billion (EUR 50.5 billion on 31 Dec 2019).
The long-term average nominal return on investments was 5.6 per cent, corresponding to a 4.1 per cent annual real return.
Due to the negative investment return, solvency capital declined to EUR 9,649 (10,792) million. The solvency ratio was 124.0 (126.6) per cent.
Outlook: Owing to growing unemployment and the temporary discount on employers’ TyEL contributions, premiums written will fall considerably year-on-year. The declining premiums written will reduce Ilmarinen’s loading income and thus the loading profit and the ratio of operating expenses to expense loading components compared to the year before. Thanks to the improvement in cost-effectiveness, loading profit is expected to be at the same level in H2 as it was in H1.
President and CEO Jouko Pölönen:
“In the second quarter, Ilmarinen’s investment portfolio yielded 5.9 per cent and solvency strengthened to 124 per cent as the equity markets recovered rapidly from the dramatic stock price plummet caused by the corona pandemic earlier in the year. Meanwhile, the global economy fell into a record-deep depression and the outlook continues to be exceptionally uncertain. However, the massive support measures by the central banks and governments are expected to guarantee the liquidity of the financial markets and companies, as a result of which the equity markets rebounded vigorously, credit risk margins narrowed and interest rates fell. The return on investments for the whole of H1 was still 2 per cent below zero. The H1 return on equity investments was –4.2 per cent and on fixed income investments –2.9 per cent. The best returns came from other investments at +10.6 per cent and real estate investments at +1.8 per cent. The long-term average nominal return on investments was 5.6 per cent, corresponding to a 4.1 per cent annual real return.
Ilmarinen’s premiums written for January–June fell to EUR 2.7 billion due to a decline in employment and the temporary 2.6 per cent discount granted on employers’ pension contributions, which was EUR 160 million less than a year ago. At the same time, pension expenditure continues to grow and EUR 3.1 billion was paid in pensions to some 460,000 pensioners. Finns do not need to be worried about their pensions as the payment of pensions is secured also during emergencies.
Strong development in cost-effectiveness continued in H1 and operating expenses financed using loading income declined by EUR 7 million from the comparison period. Due to a decline of 6.9 per cent in the expense loading rate and lower loading income, the loading profit was EUR 21 million and the ratio of operating expenses to expense loading components was 74 per cent. Thanks to the improvement in cost-effectiveness, loading profit is expected to be at the same level in H2 as it was in H1.
Through its own measures, the earnings-related pension sector has helped to build a bridge for companies over the worst of the coronavirus crisis. Together with other pension companies and authorities, we prepared a fixed-term change in the insurance terms and conditions 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 suffering from the corona crisis. This opportunity was applied to around 20 per cent of the pension contributions of Ilmarinen’s customers, and it was in force for contributions falling due between 20 March and 30 June 2020.
In operational terms, we successfully navigated through the exceptional first half of the year. Our customer service has operated as normal throughout the period and we have managed to further speed up pension processing. Of old-age pension applicants, more than 95 per cent received a decision either sufficiently fast or faster than they expected. During the second quarter, more than half of old-age pension decisions were granted in two days. During the same period, close to four in every five old-age pension applications came through the online service and digital applications increased by 30 per cent. The fastest way to receive a decision is to apply for pension digitally. Also in disability pensions, almost half of the applicants received their decisions faster than they expected.
Most of Ilmarinen’s employees started working from home in spring, as recommended. The personnel’s energy level remained excellent according to our surveys and the willingness to recommend their workplace rose despite the exceptional circumstances. Finns’ work energy in general seems to have developed well during the coronavirus period. Altogether 10,000 employees from different sectors have responded to the work-energy questionnaire offered by Ilmarinen to its customers and the results have improved in almost all areas compared to the pre-crisis period. On the other hand, the extensive remote work also involves concerns such as a lack of social interaction and support and the blurring of the lines between employees’ work and free time. With the coronavirus pandemic easing up, it is critical to ensure that workplaces are safe to return to and that the positive aspects of remote work and in-office work can be combined as successfully as possible.
Finland was successful in combatting the first wave of the coronavirus and in limiting human suffering. The pandemic continues to spread globally, however, and infection figures in some European countries have also taken a worrying growth trend. A key factor in terms of future development is how well a resurgence of the virus can be prevented without extensive lockdown measures, which would exacerbate the economic crisis and unemployment. Measures are still required for economic recovery and for strengthening the economy and employment in the long term. In addition to the economic consequences, the prolongation of the epidemic has very serious economic, social and health consequences, which we must try to prevent in any way possible. This necessitates using the lessons we have learned, extensive co-operation and proactive and responsible action from authorities, businesses and each of us as individuals.”
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 40 770 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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