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Elo's Financial Statements 2018

The year was two-fold: challenging in terms of investments, successful for sales

Following the market decline towards the end of the year, return on investment was negative for the first time in six years after a long period of good returns. Long-term returns remained on a good level. The quality of Elo’s customer work was reflected in increased market share. Efficiency of operations improved significantly.

2018 was a challenging year for investors, marked by increasing uncertainty in the international investment market. Economic growth continued to be relatively strong, both in Finland and globally. In the investment market, the beginning of 2019 has been strong and share prices have risen significantly,” says Elo’s CEO Satu Huber.

The value of Elo’s investments was EUR 22.6 (23.1) billion at the end of 2018. Overall return on investments was -1.4 per cent (7.4 per cent). The solvency capital was 1.6 (1.6) times the solvency limit at the end of the year.

The average 5-year nominal return on Elo’s investments was 4.5 per cent and the average 10-year return was 5.9 per cent. The average real return on Elo’s investments was 3.9 per cent and the average 10-year return was 4.6 per cent.

2018 was Elo’s fifth year of operations following the merger of LocalTapiola Mutual Pension Insurance Company and Mutual Insurance Company Pension Fennia. Over these years, we have engaged in determined work to offer the best customer experience in the industry, and our market share has in fact increased year by year throughout Elo’s existence. The efficiency of operations is good,” Huber adds.

The loading profit was EUR 31.8 million (EUR 23.3 million). Operating expenses were 74.9 per cent (80.9 per cent) of the premium expense loading.

Equity income fluctuated exceptionally strongly

Nervousness and high volatility were characteristic of the equity market throughout the year. The return on equity investments fluctuated strongly during the year and turned to a steep decline at the end of the year. Interest rates began to decrease already during the spring in Europe and, towards the end of the year, also in the United States. The main drivers were the tightening of monetary policy, increasing uncertainty over the development of economic growth and trade disputes,” Chief Investment Officer Hanna Hiidenpalo describes the investment year of 2018.

“Return on listed investments were low throughout the year. Private equity investments generated the highest returns of the unlisted investments. Return from real estate investments continued to be stable,” adds Hiidenpalo.

Global economic growth during the year met expectations at the beginning of the year but began to diverge between the main economic areas during the year. The stimulating financial policy and economic growth of the United States were a strong driver of global growth.

“The years following the 2008 financial crisis have for the most part generated good returns,” says Hiidenpalo.

We decreased risk level during the year

During the year, we decreased our risk level by divesting investments particularly in emerging markets and decreasing the equity weight in our portfolio already before the summer,” Hiidenpalo says.

The return from Elo’s listed equities was -10.2 per cent (17.0 per cent). Despite the difficult market situation, Finnish equities performed the best, generating excess return over market returns. The lowest return was from emerging market equities.

Elo’s fixed income investments generated a return of -0.8 per cent (1.4 per cent). The corporate bond market weakened in 2018. Italy’s budget negotiations, Brexit, trade negotiations between the United States and China as well as the end of the ECB’s asset purchase programme were significant factors behind the weakening of the market. The return from corporate bonds was -1.5 per cent (3.5 per cent). The overall return from bonds was -1.2 per cent (1.5 per cent). 

Returns from unlisted investments were strong

Returns from private equity investments developed strongly throughout the year. Significant exits and the robust profit performance of the companies invested in contributed to the excellent level of returns. Private equity investments generated a return of 16.0 per cent (14.9 per cent).

The real estate investment market was very active, and transaction volumes were again on a record high level in Finland. The steep increase in prices caused by high investment demand in recent years came to an end, and prices only increased slightly in 2018. Direct real estate investments returned 5.7 per cent (7.4 per cent) and real estate investment funds 6.3 per cent (8.2 per cent).

2019 has started strongly in the investment market

The expectations concerning global economic growth are still positive, but the risks of growth slowing down have increased more than anticipated. Consumer confidence is still on quite a high level worldwide. Furthermore, indicators measuring companies’ outlooks, in spite of their decline, also suggest that the favourable economic cycle will continue. Inflation expectations for the next couple of years remain very low.

Following the weak end of last year, the market atmosphere has been very uncertain during the first months of the year.

The beginning of 2019 has been strong in the investment market, which is largely explained by the market recovery from the market decline at the end of 2018,” comments Hiidenpalo.

Fast pension decisions and excellent customer service

On average, pension decisions were made 8 days faster than the employment pension company average during 2018. Of the customers responding to the pension services customer satisfaction survey, 86 per cent (85 per cent) gave an excellent grade for the service. The customer satisfaction NPS for the insurance and pension customers’ online service was 55.2.

The number of pension decisions issued on the basis of an application in 2018 was 25,200 (26,100). The number of disability pension decisions issued was 11,502 (10,767), which is approximately 7 per cent more than in 2017. Each month, approximately 237,900 (227,200) pensioners were paid their pension by Elo. The pensions amounted to a monthly total of about EUR 272.1 million (EUR 261.2 million).

Year of success in customer transfers

The year was a success in terms of customer transfers. Customers who transferred to Elo from other pension insurance companies increased our premiums written by almost 36 million euros,” says Huber

The premiums written for insurance under the Employees’ Pensions Act (TyEL insurance) increased to EUR 3,244.7 million (EUR 3,105.2 million). The premiums written for insurance under the Self-Employed Persons’ Pensions Act (YEL insurance) was EUR 420.7 million (EUR 428.8 million). The total number of self-employed persons and employees insured by Elo at the end of the year was over half a million: 523,900 (508,400).

Excellent development in customer satisfaction

The development of the quality of customer telephone service was continued. An excellent score of 84.0 was achieved for 2018 in the measurement of the customer experience (NPS). In May 2018, Elo’s insurance services won the category of Bisnode’s Customer’s Voice competition that measures the quality of customer calls. The category is focused on customer service functions with fewer than one hundred customer service agents.

The introduction of the national income register went well. Among other things, we modified and updated our systems, trained our customers, personnel and partners, as well as actively communicated upcoming changes to our customers through several channels.

Elo's Financial Statements 2018 >

Further information:

CEO Satu Huber, tel. +358 20 703 5811
CIO Hanna Hiidenpalo, tel. +358 20 703 5668
CFO Sarianne Kirvesmäki, tel. +358 20 703 5134

Hanna Saira, Head of Communications, tel. +358 20 703 5671

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