Solvency improved during the third quarter
In January–September, the return on Elo’s investments was –1.6 per cent (9.4 per cent). The market value of the investments was EUR 24.6 billion at the end of September. In the third quarter, return on investments was 2.6 per cent (2.0 per cent). The solvency ratio was 120.6 per cent and solvency capital was 1.4 times the solvency limit.
“The return on our investments was positive in the third quarter and our solvency improved. Our service provision to insurance and pension customers has gone smoothly in spite of the exceptional circumstances caused by the COVID-19 pandemic,” says Elo’s CEO Satu Huber.
In terms of GDP, Finland has coped with the crisis relatively well compared to most other countries. A sharp increase in the unemployment rate has been avoided in Finland thanks to the system of temporary lay-offs, and a reasonable balance has been found between preventing the growth of COVID-19 cases and keeping the economy open. The uncertainty caused by the COVID-19 situation has an extensive impact on businesses and households alike.
The COVID-19 recession has triggered unprecedented simultaneous global stimulus measures, with monetary policy and financial policy both being used.
“The stimulus measures have kept interest rates at record-low levels and considerably increased the returns of high-risk investments since they bottomed out in March. After the summer, the outlook of the investment markets has again been more challenging as the COVID-19 situation has deteriorated and the rates of economic recovery have slowed down,” notes Elo’s Chief Investment Officer Hanna Hiidenpalo.
Recovery in the investment markets
During the review period, nearly all asset classes generated positive returns except equity investments, which have also recovered considerably since they bottomed out in March. The result of investment operations at fair values was EUR –798.0 million (EUR 860.5 million).
“The equity markets have recovered quickly from the steep decline caused by the COVID-19 crisis, although the rate of recovery varies by sector and geographic region,” Hiidenpalo explains.
Elo’s credit risk investments have performed well relative to the general development of the market. The majority of the weight in Elo’s credit risk portfolio has been placed on companies with a good credit rating, and the companies that have suffered the most from the pandemic-related restrictions have represented a relatively small share of the portfolio.
The property market also developed favourably during the early autumn. The rental activity of business premises has increased slightly, and shopping centre visitor volumes have returned closer to the normal level. The investment market has also shown signs of recovery since the summer.
The hedge fund strategy has been effective in the challenging investment environment and the fund portfolio is highly diversified. Returns have been generated particularly by the successful selection of funds.
At the end of September, the average 10-year nominal return of Elo’s investments was 5.0 per cent and the average 10-year real return was 3.8 per cent. The average 5-year nominal return was 5.0 per cent and the average 5-year real return was 4.2 per cent.
“The result of the US presidential elections and the economic stimulus policies of the next administration will influence market development during the latter part of the year. In China, economic growth resumed in the second quarter. This may provide much-needed support for global economic growth during the remainder of the year. Economic forecasts predict growth for the global economy and the Finnish economy in 2021,” Hiidenpalo adds.
The COVID-19 situation has deteriorated in Europe and Finland during the early autumn, and a new period of economic decline is a key risk. Household consumption and businesses’ willingness to invest are cautious. Demand is likely to remain weaker than normal due to the continued underutilisation of resources. The labour market is recovering slowly and inflation pressure remains low. As an exports-driven economy, Finland will suffer if the situation in Europe does not improve.
The impact of the COVID-19 pandemic on the insurance business levelled off
The number of changes to YEL earned income made by entrepreneurs returned to the levels seen in 2019. The validity of the special provision confirmed by the Ministry of Social Affairs and Health last spring to allow employment pension companies to offer their customers extended due dates for pension contributions (YEL and TyEL insurance) without interest on arrears ended. Elo’s employer customers have been able to pay the postponed TyEL insurance contributions to a good degree, but entrepreneur customers have had more challenges with their postponed YEL contributions.
At the end of September, Elo administered 47,800 TyEL and 83,000 YEL insurance policies. The total number of self-employed persons and employees insured by Elo was 484,900.
Pension decisions made swiftly even under the exceptional circumstances
Elo’s strong investment in automation development and proactive customer service is reflected in the excellent results of pension processing. For example, Elo’s customers have received a decision on partial early old-age pension in one day on average, compared to three days on average for other employment pension companies.
A total of 242,900 pensioners were paid their pensions by Elo at the end of September. A total of EUR 2,658.1 million was paid in pensions during the reporting period. Elo issued a total of 19,350 pension decisions.
On 30 September 2020, Elo received a letter of hearing from the Financial Supervisory Authority concerning the exceptional economic crisis of spring 2020 and the situation regarding Elo’s solvency at the time. The Financial Supervisory Authority has requested an account of Elo’s actions and decision-making criteria in the challenging economic environment of the COVID-19 spring. Elo’s Board of Directors and management will familiarise themselves with the letter of hearing and respond to it by the deadline on 30 October 2020. In its response, Elo will also express an opinion on the Financial Supervisory Authority’s suggestion in the letter of appointing an authorised representative for Elo.
The impact of COVID-19 was reflected in the volume of insurance transfers
The impact of the COVID-19 pandemic was still evident in the total volume of the third transfer period of the year. The transfer period was quieter than the corresponding period last year. The number of customer accounts continued to increase favourably.
In the recently completed transfer period, the net growth in the number of TyEL customer accounts was 149 employer customers, while the number of entrepreneur customers increased by 271. Customer retention improved thanks to active customer account management.
Elo Interim Report 1 January - 30 September 2020 >
Elo Interim Report 1 January - 30 September 2020 Presentation >
CEO Satu Huber, tel. +358 20 703 5811
CIO Hanna Hiidenpalo, tel. +358 20 703 5668
CFO Sarianne Kirvesmäki, tel. +358 20 703 5134