Elo Interim Report 1 January – 30 September 2014: Return on investments at a good level despite economic uncertainty
- The return from Elo’s investment operations was 4.9 per cent in January-September 2014.
- At the end of September, the total value of Elo’s investments was EUR 19,440 million.
- Solvency remained at a sustainable level; the solvency ratio was 26.4 per cent of technical provisions and solvency capital was 2.0 times the solvency limit.
In fixed income and equity investments, the adjustments to portfolio weightings in relation to various markets that were started in the first half of the year were continued. In equity investments, geographical weightings were adjusted by increasing investments in the US. In fixed income investments, investments in emerging market investments were reduced following good performance. “One of the most significant trends in the last few months was the considerable appreciation of the dollar, which also supported Elo’s investment returns,” says Hanna Hiidenpalo, Director and Chief Investment Officer at Elo.
Positive development in all asset classes continued
From the start of the year, equity investments were the best performing asset class, with returns reaching 7.3 per cent. Returns on unlisted shares and private equity investments were excellent, in particular. Returns for non-listed investments totalled 9.7 per cent and returns for private equity investments totalled 15.4 per cent.
Returns on Elo’s fixed income investments totalled 3.4 per cent and returns on property investments totalled 4.0 per cent. In other asset classes, returns on hedge fund investments rose to 5.3 per cent.
The five-year average nominal return on investments was 5.9 per cent (1 October 2009 – 30 September 2014), and the ten-year average nominal return was 5.3 per cent (1 October 2004 – 30 September 2014). The calculation used the investment returns of LocalTapiola Pension Company for the period 2004–2013.
Elo’s solvency capital remained at a sustainable level and was EUR 4,113 million at the end of September, and 26.4 per cent in relation to technical provisions. The solvency ratio, which is the ratio of solvency capital to the solvency limit, was 2.0.
Contrasts in global economy become more pronounced
The investment environment remained relatively stable and positive from July to the end of September. Factors contributing to this included sufficient global growth, very good liquidity and assumptions that central banks’ market support would continue. However, market sentiment became more cautious in September.
“The variations in global economic growth have become more pronounced. In the USA, the economy is already growing solidly at an annual rate of about 3 per cent. Economic growth is continuing also in China, although the highest growth figures have already been seen there. However, in Europe, growth remains at a low level. Germany’s economic position has recently become a particular cause for concern, as growth for this year will not reach the approximately 2 per cent which was forecast in the summer,” Hiidenpalo says.
The central banks are continuing to provide significant support for the recovery of economies. Europe’s downward inflation trend has caused concern for the European Central Bank because if it continues, it will start to delay consumption decisions and further reduce demand for credit.
The outlook on the investment markets for the rest of the year is more uncertain than it was at the beginning of the year because only the US economy seems to be achieving clearly favourable performance. The markets’ risk is being increased by geopolitical tensions and the weakening of China’s economic growth. The investment markets are rather expensively priced on both the equity and fixed income markets, which is why low returns are anticipated for the coming years.
Elo is ready for the pension reform
The result of the negotiations that was reached in September provides a foundation for the employee pension system reform. “Our employee pension system displayed its strength by being able to agree on the changes. The agreed package removes the pressure to raise pension payments for years to come,” says Lasse Heiniö, Managing Director at Elo. “The solution to raise the pension age is justified because Finns live longer and healthier lives these days. Part of this extended lifetime must be used for working and part for retirement.”
Elo Mutual Pension Insurance Company Interim Report 1 January – 30 September 2014, slides (pdf) >
Lasse Heiniö, Managing Director, tel. +358 20 703 5101
Hanna Hiidenpalo, Director and Chief Investment Officer, tel. +358 20 703 5668