Increased returns in the second quarter
Elo Half-Year Financial Report (1 January–30 June 2018)
Elo Mutual Pension Insurance Company’s return on investments was 0.8 per cent in January–June (4.4 per cent in January–June 2017). In the second quarter, return on investments was 1.2 per cent (1.5 per cent). Elo’s market share improved. The popularity of partial early old-age pensions levelled off.
The market value of Elo’s investments was EUR 23.4 billion at the end of June (EUR 22.6 billion on 30 June 2017). The solvency ratio was 123.8 per cent and solvency capital was 1.7 times the solvency limit.
“The global investment markets were characterised by volatility during the first half of the year, with low returns in many asset classes. Elo’s long-term returns are still at a good level. The average five-year nominal return was 6.1 per cent and the average ten-year nominal return was 5.4 per cent,” says Elo’s CEO Satu Huber.
The average five-year real return was 5.4 per cent and the average ten-year real return was 4.2 per cent.
Elo’s market position strengthened in the first half of 2018, particularly as a result of the pension insurance companies’ transfer periods, which saw Elo’s TyEL premiums written increase by EUR 18.1 million (EUR 12.2 million). Elo’s market share now stands at 25 per cent.
“Our market share has seen strong growth since Elo began its operations. We have invested in customer experience and service development, in particular. These efforts led to the telephone service of Elo’s insurance services being selected as the best in Finland in the Customer’s Voice Index,” Huber adds.
At the end of June, Elo provided pensions to a total of 233,525 pensioners. A total of EUR 1,621 million, of which old-age pensions accounted for EUR 1,371 million, was paid in pensions during the first two quarters. Elo gave a total of 12,756 pension decisions based on applications during the first half of 2018.
The popularity of partial early old-age pension levelled off from last year, with 1,029 (1,536) decisions given this year. Entrepreneurs accounted for 26 per cent of those who opted for partial early old-age pension.
Elo has given only a few career pension decisions thus far. As expected, the number of applications has been relatively low.
Unlisted investments generated the highest return
At the end of June, the value of Elo’s investments was EUR 23,404 million (EUR 22,607 million). Return on investments was 0.8 per cent (4.4 per cent) during the first half of the year. In the second quarter, return on investments was 1.2 per cent (1.5 per cent).
“Unlisted investments generated the best returns during the first half of the year. This supported the overall rate of return as returns in the securities markets were weighed down by the volatile economic climate,” says Hanna Hiidenpalo, Chief Investment Officer at Elo.
The return on private equity investments was 6.7 per cent and the return on real estate investments was 3.1 per cent. Listed equities generated a return of 0.3 per cent and the return on fixed income investments was -0.9 per cent.
“There were significant geographical differences in returns between equity markets. The highest returns were seen in the Finnish equity market at nearly 10 per cent, while the returns from other European equity markets were slightly negative,” Hiidenpalo states.
Responsibility is reflected in Elo’s climate strategy
Elo joined 60 other institutional investors in signing an open letter that was published in May to encourage oil and gas companies to develop solutions that are in line with the two-degree warming goal stipulated by the Paris Agreement. In June, Elo expanded its engagement efforts from corporations to governments by signing a joint statement together with hundreds of investors. The statement is aimed at urging the leaders of the G7 nations to commit to the goals of the Paris Agreement more strongly.
During the reporting period, Elo was also highlighted as a positive example in taking climate issues into account globally in the Winning Climate Strategies report by the international climate organisation AODP.
Uncertainty related to international economic development and the political climate is currently reflected in the investments markets. The United States looks to be the only strong engine of growth among the OECD countries, with the outlook being weaker to varying degrees in other national economies.
Aside from the usual cyclical concerns, trade policy conflicts are a newly emerged factor and they appear likely to continue—and perhaps even escalate—in the near future.
“While trade-related tensions are not thought to have had a significant impact on economic growth so far, they are likely to create increased uncertainty regarding short-term economic and market development,” Hiidenpalo adds.
Economic growth in Finland in several sectors was strong during the first half of the year, but it may be that the best period is now behind us. International demand has remained favourable and private consumption is still high. Private consumption has also been supported by the positive development of employment. Nearly 100,000 new jobs have already been created in Finland this year.
CEO Satu Huber, tel. +358 20 703 5811
CIO Hanna Hiidenpalo, tel. +358 20 703 5668
CFO Sarianne Kirvesmäki, tel. +358 20 703 5134