FINANCIAL STATEMENTS 2016: GOOD END-OF-YEAR PERFORMANCE RAISED INVESTMENT RETURN TO 4.8 PER CENT, CLIENT BONUSES AT RECORD-HIGH
Despite modest economic development, 2016 was a good year for Ilmarinen. In the early part of the year, investment returns were weak but ended up at 4.8 per cent for the full year thanks to excellent performance in the latter part of the year. Solvency remained strong and cost-effectiveness improved, which raised client bonuses to a record-high level. The number of insured and premiums written grew slightly. During the year, new digital services were developed for customers and preparations were made for the implementation of the pension reform.
In 2016, Ilmarinen’s investments yielded 4.8 (6.0) per cent and the market value of investments rose to EUR 37.2 (35.8) billion. From the perspective of investment returns, the year was twofold. The early part of the year was marked by a strong decline in share prices, and Ilmarinen’s investment returns also remained in negative territory. Towards the end of the year, performance improved clearly.
“The Brexit referendum and the US presidential election fuelled political uncertainty, causing stock price volatility. Global economic growth was modest and interest rates sunk to an all-time low. Against this challenging backdrop, we reached a reasonably good investment return,” says Ilmarinen’s President and CEO Timo Ritakallio.
In Ritakallio’s view, the good result is attributable to Ilmarinen’s long-term investment strategy, according to which the diversification of investments was continued both geographically and across various asset classes.
“During the year, we reduced fixed income investments and increased investments in real asset classes. We continued to diversify our real estate investments abroad and invested in new properties in Frankfurt, Berlin and Amsterdam, among other places,” says Ritakallio.
Among the main asset classes, equities and shares performed best in spite of share price volatility. The return on the equity portfolio was 6.5 (11.6) per cent. The return on real estate investments was 6.4 (7.8) per cent and 3.6 (1.2) per cent on fixed income investments.
“Investments in listed Finnish equities and shares yielded excellent returns, at more than 15 per cent. The US and emerging economy equities and shares also performed well. However, investments in other European equities and shares lowered the overall return on the equity portfolio,” Ritakallio explains.
Ilmarinen’s long-term real annual return on investments since 1997 has been on average 4.2 per cent.
Solvency remained strong. At the end of 2016, Ilmarinen’s solvency capital was EUR 8.5 (8.2) billion i.e. 29.2 (29.6) per cent of technical provisions. The solvency position was 2.0 (2.0) times the solvency limit.
Client bonuses at record level
At the end of the year 38,100 (38,400) companies had insured their employees with Ilmarinen. The total number of insured was 563,500 (562,000). The employees’ share of this was 502,000 (500,500) and that of self-employed persons was 61,500 (61,900). Premiums written grew slightly and stood at EUR 4.3 (4.3) billion.
“More than 10,000 new companies or self-employed persons took out insurance with Ilmarinen, which we are particularly pleased with. In customer retention, however, we fell short of our target and will consider it our priority during the current year,” Ritakallio says.
Ilmarinen’s cost-effectiveness improved further and total operating expenses decreased to EUR 147 (151) million. The ratio of operating expenses to the expense loading components available for them, measuring cost-efficiency, was 74.9 (75.5) per cent.
Thanks to good solvency and cost-efficiency, bonuses paid to client companies rose to a record-high level at EUR 102 (98) million. They were 0.6 (0.6) per cent of the payroll of the companies insured with Ilmarinen.
A smooth start to the pension reform
In 2016, both the number of pension recipients and the amount of pensions paid increased. At the end of the year, Ilmarinen paid out pensions to 329,300 (323,200) people in a total amount of EUR 4.6 (4.4) billion. This is close to EUR 300 million more than the insurance contributions collected by the company. The difference will be covered by the investment returns on pension funds.
The company issued a total of around 26,500 (22,800) new pension decisions. This is an increase of as much as 16 per cent on the previous year, which is partly explained by the clearing of the backlog of applications related to the renewal of the pension processing system.
“The extensive information system renewal carried out in 2015–2016 initially caused delays in the processing of pension applications, but by the end of last year, we had managed to clear the backlog and the processing times are returning to their previous level. Going forward, pension processing will be automated and processing times will shorten further,” Ritakallio says.
The changes to the information system were part of the preparations for the pension reform that entered into force at the start of this year. Ilmarinen offered its customers information about the pension reform in the form of, among other things, newsletters and popular online calculators.
“The implementation of the pension reform has got off to a smooth start at Ilmarinen. It will be interesting to see how the reform will impact retirement in the long run and how Finns will make use of the new pension types. At the initial stage, at least, there has been great interest towards the new partial early old-age pension,” Ritakallio says.
New services for well-being at work
2016 was another active year for well-being at work services. Ilmarinen organised 43 seminars on well-being at work for its customer companies throughout Finland, attracting more than 2,500 participants. During the year, more than 2,100 (1,900) projects supporting well-being at work were underway and these covered 150,000 (160,000) people.
“In addition, in line with our strategy, we developed new digital services to support well-being at work and work capacity management. The new services will further increase the effectiveness of our well-being at work activities, as we are able to offer services even to the smallest companies,” says Ritakallio.
Among the new services, the Better Working Life virtual control room ‘Ohjaamo’ supports companies’ work capacity management and improves the predictability of disability risks. The ‘Parempi vire’ mobile app, in turn, encourages employees to take care of their well-being.
“More new services are in store going forward. Last year, we launched an innovation model called Wauhdittamo, where our customers and personnel work together to develop even better services through a new approach,” Ritakallio says.
Ilmarinen also supports the management of disability risks and longer careers in its client companies through vocational rehabilitation. More than 6,300 benefit decisions related to rehabilitation were made in 2016, which was a 7.9 per cent increase on the previous year.
The objective of the well-being at work services and rehabilitation is to reduce the costs arising from disability. Last year, Ilmarinen paid approximately EUR 400 (418) million in disability pensions, which was 8.7 per cent of the total pension expenditure.
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
Jaakko Kiander, Senior Vice President, Finance and Governance, tel. +358 10 284 2599, +358 50 583 8599
Päivi Sihvola, Senior Vice President, Corporate Communications, Marketing and Human Resources, tel. +358 10 284 3590, +358 40 757 4992