Elo’s 2014 financial statements: Merger succeeded as planned
- Elo’s first year of operation went according to the integration plan.
- At fair values, the return on investments in 2014 was 6.2 per cent.
- Solvency ratio remained strong throughout the year, reaching 25.8 per cent by the end of the year. Solvency capital exceeded the solvency limit by a factor of 2.1 at year’s end.
Elo Mutual Pension Insurance Company began operations at the beginning of 2014 following the merger of Pension Fennia and LocalTapiola Pension. The new company got off to a smooth start and the standard of customer service was maintained at a high level despite the numerous changes taking place in the organisation.
“In the context of the Finnish pension industry, Elo’s establishment as a result of the merger was a large-scale operation that required extensive efforts. It was worth it. The studies and surveys carried out in preparation for the merger showed that the combination would be an excellent solution for our customers. Now that we’ve pooled our resources, we’re in a position to offer a more comprehensive range of services,” says Elo’s Managing Director Lasse Heiniö.
Operating costs remained reasonable despite cost of integration
Considering the extensive IT system projects and other outlays related to the integration, Elo’s operating costs remained at a reasonable level. Total operating costs in 2014 reached EUR 128.3 million. The operating costs to be financed by the expense loading components available from the insurance contributions were EUR 92.2 million. Elo used 74.3 per cent of the expense loading components included in the insurance contributions for operating expenses, showing a surplus of EUR 31.8 million.
At the end of 2014, the ratio of solvency capital to technical provisions was 25.8 per cent, up 0.7 percentage points since Elo commenced operations. The ratio before the equalisation provision was 22.9 per cent. Solvency capital exceeded the solvency limit by a factor of 2.1 at the end of the year.
Based on the solvency capital and expense loading components, a total of EUR 56.4 million will be allocated to client bonuses. Total bonuses amount to 0.5 per cent of the employment pension wagebill.
Investments reached nearly EUR 20 billion
The return earned by Elo on investments reached 6.2 per cent. At the end of the year, the total value of investment assets amounted to EUR 19,630 million. “The return was perhaps higher than expected. All the asset classes yielded a positive return despite the challenging operating environment,” Managing Director Heiniö says.
Of all the asset classes, the best performance was achieved in equities, which generated a 9.8 per cent return. Listed equities yielded a return of 8.0 per cent, unlisted equities 26.0 per cent and private equity investments 18.9 per cent.“With equities, the highest returns were earned in the United States and on investment in the emerging Asian markets,” says Hanna Hiidenpalo, Director and Chief Investment Officer.
In fixed-income investments, sovereign bonds were diversified outside the euro zone and steps taken to prepare for rising interest rates. “Corporate bonds continued to generate a healthy return, particularly in Europe. This was due to the growing confidence in the policies of the European Central Bank and improved economic performance by the southern European countries. In the second half of the year, intensifying geopolitical tensions and the fall in the price of oil increased uncertainty and ate into the returns on higher-risk corporate bonds,” says Hiidenpalo. “Fixed-income instruments yielded a return of 3.8 per cent, which was good enough considering expectations and the historically low interest rates.
Elo’s corporate funding resources were substantially improved as a result of the merger when the financing operations of the two companies were combined. The financing services available to corporate customers were enhanced during the reporting period. A new loan instrument created for small and medium-sized enterprises was developed and launched in collaboration with Finnvera. The loan receivables yielded a return of 3.1 per cent.
Investments in hedge funds generated a 7.2 per cent return, while real estate investments yielded 5.4 per cent. The fair values of Elo’s real estate assets were somewhat burdened by the low occupancy rate of offices and the decline in rents. By contrast, property investments in the international markets gave a healthy return. The highest returns were earned in the fast recovering UK and US real estate markets.
Elo’s five-year (1 January 2010 –30 December 2014) average nominal return on investments was 5.6 per cent, and the ten-year (1 January 2005––31 December 2014) average nominal return 5.2 per cent. For the years 2004–2013, the calculation is based on the returns earned by the LocalTapiola Pension Company.
Elo Finland’s largest pension insurer for entrepreneurs
At the end of 2014, the total number of entrepreneurs and employees insured by Elo was 485,429, or almost half a million. Elo is the market leader both in employment and entrepreneur pension insurance. At the end of 2014, Elo administered 46,103 employment and 87,350 entrepreneur pensions.
For employment pensions, the premiums written totalled EUR 2,600.0 million, while the corresponding figure for entrepreneur pensions was EUR 420.7 million. All in all, the premiums written totalled EUR 3,022.9 million.
Pension processing and decisions quick and of high standard
Elo pays out pensions to some 217,000 pensioners every month. The total amount of monthly pensions is about EUR 227.7 million. Elo’s total annual pension and claims expenditure was EUR 2,731.9 million.
In 2014, Elo issued a total of 26,000 decisions on pensions. The number of pension decisions relative to the decisions made by the predecessor companies in 2013 remained at the same level. Despite the merger and the additional work it involved, Elo was already able to exceed the industry average for the speed of processing pension and rehabilitation applications during its first year of operation. In 2014, decisions were issued about 7 days – or 15 per cent – faster on average than the average in the private sector employment pension industry.
Elo’s financial statements presentation (pdf) >
Lasse Heiniö, Managing Director, tel. 020 703 5101
Hanna Hiidenpalo, Director and Chief Investment Officer, tel. 020 703 5668