The return on Ilmarinen’s investments was 7.1 per cent as the coronavirus crisis was shaking the markets. The value of investment assets increased to an all-time high, more than EUR 53 billion, and solvency strengthened. Operating expenses decreased by 9 per cent.
– In a very challenging market situation, Ilmarinen’s investment operations were successful. The return on investments was 7.1 per cent, or EUR 3.5 billion, and solvency strengthened to 130.2 per cent. Operating expenses financed using loading income decreased by EUR 11 million, and high cost-effectiveness coupled with strong solvency benefits our customers in the form of client bonuses. We became the most solvent pension insurance company and managed to consolidate our position as a leader in our field, says Ilmarinen’s President and CEO, Jouko Pölönen.
In addition to the investment markets, the Covid-19 pandemic also had a substantial impact on the employment situation and companies’ payroll. Ilmarinen’s premiums written were EUR 5.2 (5.8) billion. EUR 6.1 (6.1) billion was paid in pensions. In addition to decreased employment, premiums written were reduced by the temporary 2.6 percentage point reduction in employers’ TyEL contribution during 1 May–31 Dec 2020.
– We have supported our customers in many ways during the crisis. Together with other pension companies and the authorities, we prepared, in the early phase of the crisis, the option to extend the statutory pension contribution payment period and negotiated relief for rent payments. The declining employment rate, zero-interest-rate environment and low birth rate also put pressure on the financing of pensions. Right now, it is important to focus on getting the population vaccinated and restrictions lifted rapidly to mitigate the economic and social consequences of the crisis. At the same time, we must find solutions that enable us to increase employment and competitiveness also in the long term, Pölönen says.
Smooth operations, faster pension decisions
Ilmarinen’s operations proceeded without disruptions, regardless of the exceptional circumstances due to the coronavirus pandemic. Customer service and the payment of pensions continued as usual throughout the year, and customer experience strengthened.
The company issued more than 36,000 new pension decisions, and its customers received their pension decisions faster than before. The share of digital services increased and around 70 per cent of old-age pension applications were sent in electronic format via the online service. Ilmarinen’s online service was renewed in the autumn.
Ilmarinen’s net customer acquisition increased to EUR 281 (204) million thanks to excellent customer retention rate, 97.2 per cent. At the end of the year, more than 70,000 employers had chosen Ilmarinen as their earnings-related pension provider, and 555,000 employees and 76,000 self-employed persons were insured with the company.
The operating expenses to be covered through the expense loading component decreased by 9 per cent to EUR 118.7 (130.2) million. The loading profit was EUR 43 (55) million and the ratio of operating expenses to expense loading components, measuring cost-effectiveness, was 73.3 (70,5) per cent.
– To us, responsible management of pension cover means that we strive to be as customer-focused and cost-effective as possible, while at the same time continuously improving our operations. This benefits our customers, but it is also important for the whole of society. We achieved the synergy targets set in connection with the Etera merger in 2018 as planned, and the merger has helped boost the operations of the entire pension system, Pölönen says.
Followed by a strong investment result, Ilmarinen’s total result amounted to EUR 1.8 (2.0) billion.
Large movements in the investment markets
– The coronavirus crisis caused a strong and exceptionally fast stock market crash early in the year. Following massive stimulus measures by central banks and governments, stock prices were already back on their way up in early spring, and market prices in the various asset classes increased extensively during the final quarter of the year, says Mikko Mursula, Chief Investment Officer.
After the sharp fall in the early part of the year, Ilmarinen’s return on investments rapidly turned positive, and the return on investments for the whole year came to 7.1 (11.8) per cent. The value of investment assets grew to EUR 53.3 (50.5) billion.
– Our investment strategy proved to work very well also in the spring’s crisis market. Solvency did not become a limiting factor for investment decision-making, for which reason we did not cut investment risk levels during spring. This placed us in a good position during the positive end-of-year market movement, which can be seen as a good return on investments during the last three quarters of the year. At the asset class level, successes were also seen extensively and the return on absolute return investments, for example, was clearly positive in both the bear market of the early part of the year and the bull market later in the year, says Mursula.
Among the main asset classes, equities and shares gave a return of (12.4) 20.8 per cent. The total return on fixed income investments, i.e. bonds, fixed income funds, other financial market instruments and loan receivables, was negative, at -0.4 (4.7) per cent. The return on real estate investments was (0.4) 8.4 per cent. In the real estate markets, the Covid-19 pandemic has led to a higher vacancy rate of premises, impacting the expected long-term rental income and weakening valuations. Other investments gave a return of 20.2 (-2.1) per cent; this category includes commodity investments, investments in absolute return funds and currency investments.
Ilmarinen’s annual average return since 1997 has been 5.9 per cent, which corresponds to a real return of 4.4 per cent per annum. 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 130.2 (126.6) per cent, thanks to the good investment result. The solvency capital at year-end stood at an all-time high, at EUR 12.5 (10.8) billion.
– We invest pension assets profitably, securely and responsibly. We have set as a goal to achieve a carbon-neutral investment portfolio by the end of 2035. To achieve that target, we will take a broad approach to carbon risk and gradually lower the high risk limit. We also promoted the goals of responsible investing by increasing the energy efficiency of properties and developing the circular economy. In passive investments, Ilmarinen has participated in launching several equity index funds that invest in an ESG benchmark index. These funds already cover 90 per cent of the passive investments in Ilmarinen’s listed equity portfolio, Mursula says.
Disability pensions started to decrease
The number of disability pension applications received by Ilmarinen declined by some 7 per cent, and the number of persons retiring on a disability pension or cash rehabilitation benefit was 3,766, down 14 per cent from the previous year. EUR 480 (500) million was paid in disability pensions. Mental disorders were the most common reason behind disability pensions.
– The increase in disability pension applications seems to have come to a halt, which is good news. However, due to Covid-19, last year was very exceptional, which means that no far-reaching conclusions can be drawn and the impacts of the pandemic on the development of work ability can only be seen in the longer term, Pölönen says.
Ilmarinen supports the anticipation and management of disability risks in its client companies through risk-based, systematic and goal-oriented co-operation. During the year, EUR 3.6 million was used for work ability activities. Some of our client companies’ planned work ability projects were cancelled or postponed due to the exceptional circumstances caused by the coronavirus crisis.
Disability is also prevented through vocational rehabilitation. During the year, 3,109 persons received a positive decision on the right to rehabilitation from Ilmarinen. Close to 80 per cent of the rehabilitees were available to the labour market after completing rehabilitation.
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