Tiedote 29.7.2016

ILMARINEN’S INVESTMENT RETURN IMPROVES IN Q2

In January–June, Ilmarinen’s investment portfolio generated a return of -0.6 per cent (6.2 per cent on 30 June 2015). The return on the first quarter was -1.4 per cent and 0.8 per cent on the second quarter. The long-term real return remained at a good level, at 4.0 per cent. At the end of June, the market value of investment assets totalled EUR 35.7 (36.4) billion.

The beginning of the year was a challenging time for the investment markets. Concern about the growth rate of the global economy and the Brexit vote caused fluctuation in stock prices.

"Despite the market uncertainty, the Q2 investment result was positive although, due to the weak first quarter, the return on the first half of the year was slightly negative," says Ilmarinen's President and CEO Timo Ritakallio.

Ilmarinen's investments in listed equities produced a return of -5.8 (15.4) per cent, fixed income investments 0.3 (0.8) per cent, and direct real estate investments 1.7 (3.0) per cent. Private equity investments yielded particularly well, achieving a return of 5.5 per cent.

Ilmarinen's long-term investment return continued at a good level. The company's real return on investments since 1997 is 4.0 per cent per year. The Finnish Centre for Pensions uses a 3.5 per cent expected real return rate to estimate the future development of earnings-related pension insurance contributions.

"Ilmarinen's strong solvency served as an effective buffer against the exceptionally challenging investment environment," says Ritakallio.

At the end of June, Ilmarinen's solvency capital was EUR 7.4 (9.1) billion, which is 26.1 (33.2) per cent of the technical provisions and 2.2 (2.4) times the solvency limit.

Geopolitical unease and Brexit add to market uncertainty

According to Ilmarinen's CIO Mikko Mursula, the bottoming out of the global equity market took place halfway through February but the volatility continued to be strong also in the spring and early summer.

"Regional yield differences between the stock markets were unusually large. The stock indices of the United States and emerging economies ended up in clearly positive territory. Meanwhile, the European market, weighed down by growth and Brexit-related concerns, closed H1 clearly in the red," he says.

"The result of the UK's EU referendum came as a major surprise to the markets. Stock prices plummeted dramatically after the vote but have since returned to the pre-Brexit level and even exceeded it," says Mursula.

He believes the strong market volatility will continue also during the rest of 2016.

"Geopolitical unease has grown and we can only present rough estimates and guesses of the real implications of Britain's EU referendum, for example. Both phenomena increase the markets' uneasiness and are certainly not going to raise any hopes of a recovery in economic growth," he says.

According to Mursula, the historically low interest rate level will continue to guide investors to seek alternatives to fixed income investments.

"It is likely that strong demand will continue to be directed at various real asset classes, such as real estate, and at shares in companies with a strong balance sheet and dividend payment ability," he assesses.

Positive development in sales

In the first half of the year, Ilmarinen performed well in the competition between pension insurance companies. Sales for January–June, measured in premiums written, came to EUR 63.9 million (EUR 47.0 million on 30 June 2015).

"Customer acquisition has been successful and in line with our targets. Our customer retention also improved from last year," says Timo Ritakallio.

At the end of June, Ilmarinen handled some 38,000 (38,300) earnings-related pension insurance policies and around 61,600 (62,200) pension policies for the self-employed. The number of insured private customers declined from the previous year. This resulted especially from the weak economic and employment situation. At the end of June, a total of 535,000 (541,000) persons were insured with Ilmarinen.

"Finland's weak economic situation is also visible in the development of Ilmarinen's premiums written. Premiums written will probably remain at last year's level," says Ritakallio.

The number of pension recipients continued to rise steadily, however. Ilmarinen paid out pensions to

324,900 (320,500) pensioners in June.

The operational efficiency of Ilmarinen's activities is expected to be around 78 (76) per cent in 2016.

Digital services developing

The implementation of Ilmarinen's long-term strategy has progressed well.

"We have focussed on improving customer service, developing the well-being at work of our personnel and energising our work community," says Ritakallio.

Customers and personnel were involved in the development of new digital services for Ilmarinen's customers through the Wauhdittamo operating model.

"Over the course of the spring, every tenth Ilmarinen employee worked in Wauhdittamo on customer service development projects selected through agile methods," Ritakallio explains.

During the first part of the year, new digital services have been launched at Ilmarinen, which enable customers to manage work capacity based on real-time information.

"We want to continue offering more and better digital well-being at work services for customers of all sizes. The work capacity development projects carried out together with clients increasingly highlight the role of Ilmarinen's specialists," says Ritakallio.

The figures presented in this release are unaudited.

Interim report

Attachments

For more information, please contact:

Timo Ritakallio, President and CEO, tel. +358 10 284 3838, +358 500 536 346
Mikko Mursula, CIO, tel. +358 10 284 3840, +358 50 380 3016