The investment market recovered briskly
In January–June, the return on Elo’s investments was −4.1 per cent (7.2 per cent). The market value of the investments was EUR 24.0 billion. In the second quarter, return on investments was positive at 5.9 per cent (1.9 per cent). The solvency ratio was 119.4 per cent and solvency capital was 1.4 times the solvency limit.
At the end of June, the average 10-year nominal return of Elo’s investments was 5.1 per cent and the average 10-year real return was 3.9 per cent. The average 5-year nominal return was 3.9 per cent and the average 5-year real return was 3.3 per cent. The result of investment operations at fair values was EUR −1,070.1 million (EUR 682.9 million).
“The record-steep decline in the listed securities market in March was followed by a fast rise, driven by exceptionally intensive stimulus measures. After the temporary drop caused by the coronavirus shock, Elo’s solvency strengthened significantly due to the general market rise,” notes Elo’s CEO Satu Huber.
Elo’s pension assets in relation to technical provisions, i.e. the solvency ratio, has been at a good level throughout the year, sufficient to cover the liabilities. The solvency position weakened temporarily in March as a consequence of the coronavirus crisis. In the second quarter, Elo submitted a recovery plan to the Financial Supervisory Authority, drawn up after Elo’s solvency position fell one point (0.01) below the supervisory threshold of 1.0 for one day. The Financial Supervisory Authority approved Elo’s recovery plan on 16 June 2020.
The coronavirus pandemic has had major impacts on our society.
“The key thing now is that the epidemic is brought under control and we can keep Finland functional and the wheels of economy turning. Only this will enable us to reduce the future economic and social costs of the pandemic,” says Huber.
“At Elo, we have prepared ourselves for the second wave of the coronavirus pandemic and are working hard to take its effects into account in our operations,” says Huber.
The economic growth outlook still characterised by major uncertainty
The coronavirus pandemic hit both the global and the Finnish economy hard. Household and corporate behaviour is cautious. As a result, consumption and investments will recover slowly and economies will not reach their pre-crisis GDP levels in the next few quarters. Public authorities have played a key role in supporting demand. The aim of stimulus measures is to support companies in overcoming the crisis in order to save as many jobs as possible.
Investor confidence has been restored by economic policy stimulus measures. In addition to monetary policy instruments, especially the abundant financial policy support for demand has played a key role in this.
Unprecedent recovery on the investment market after the slump
“The global equity market recovered quickly from its exceptionally steep decline early this year. The equity market has operated almost normally throughout the crisis and liquidity has remained good, thanks to stimulus measures,” comments Elo’s Chief Investment Officer Hanna Hiidenpalo.
In the equity market, geographical differences in returns have increased. Market growth has become polarised and concentrated on certain companies and sectors.
“In Elo’s equity portfolio, Finland and the United States have generated the highest returns and Europe the lowest, which is also characteristic of general market development. In the United States, technology companies have generated good returns and supported the market. Europe lacks similar high-growth companies, which in part explains the weaker performance of the European market,” says Hiidenpalo.
During the period under review, fixed income investments, real estate investments and other investments, consisting mainly of hedge fund investments, generated positive returns.
Uncertainty will characterise both the economic outlook and the investment market for a long time to come
“In the economic outlook, uncertainty will continue for the remainder of the year, too. A new concern is the second wave of the coronavirus pandemic, which would, at worst, stifle demand both in Finland and in the key export markets,” notes Hiidenpalo.
“Economic development and the development of the investment market have taken divergent paths for a long time already. What is crucial for the long-term development of the investment market is how long this divergence continues. Lack of profitable investment alternatives seems to support the development of the equity market in conditions where low interest rates prevail,” says Hiidenpalo.
Return estimates depend on how well the coronavirus situation is kept under control in the key economies. The US presidential election will be an important event this autumn as well as a crucial driver for the investment market.
Customer contacts increased
The coronavirus epidemic had many kinds of impacts on the employment pension sector during the first half of 2020. Measures were taken quickly by the sector to improve customers’ ability to overcome the crisis. Pension contributions were temporarily decreased in accordance with the agreement made by central labour market organisations in March. The temporary decrease of employers’ pension contributions by 2.6 percentage points was introduced at the beginning of May and will be in force until the end of the year.
Employment pension companies could also extend the terms of payment of pension contributions. Consequently, customer contacts with Elo increased during the first half of the year. Entrepreneurs made considerably more changes to YEL earned income than normal, and more than 10 per cent of entrepreneurs had their YEL insurance contribution due date extended. The number of TyEL insurance contribution due date extensions also multiplied from the ordinary number. The number of pension contribution due date extensions was at its highest in April. Customer satisfaction was kept at a high level in spite of the increase in customer contacts. The NPS for telephone services was an excellent 91.1 in January–June.
Old-age pension decision in four days
In old-age pensions and survivors’ pensions, strong investment in automation development and proactive customer service could be seen in the excellent results achieved. During the first half of the year, Elo made old-age pension decisions on average in four days, while the sector’s average was 12 days. Decisions regarding partial early old-age pension were made by Elo in one day, with the sector’s average being four days.
“The quality of customer service was excellent during the period and pension decisions were made smoothly in spite of the increase in customer contacts brought about by the coronavirus situation. Elo employees moved to remote work successfully and customer feedback received has been gratifying despite the exceptional circumstances,” says Huber.
At the end of June, a total of 241,800 (238,600) pensioners were paid their pensions by Elo. EUR 1,767.2 million (EUR 1,697.0 million) was paid in pensions during the first half of the year. Elo issued a total of 13,974 (13,265) pension decisions on the basis of an application. A total of 3,391 (3,753) old-age pension decisions and 1,152 (1,198) partial early old-age pension decisions were issued.
Elo’s position on the entrepreneur market strengthened
Due to the coronavirus pandemic, the total volume of the second transfer period of 2020 was slightly lower than last year. Nevertheless, the number of customer accounts continued to increase favourably. In the past transfer period, the net increase in the number of TyEL customer accounts was 110 employer customers and premiums written also developed positively.
The number of entrepreneur customers grew by 263 customers during the transfer period. In customer acquisition, the market share increase has continued regarding both employer and entrepreneur customers. Good sales results during the first half of the year strengthened Elo’s market leadership on the YEL market.
CEO Satu Huber, tel. +358 20 703 5811
CIO Hanna Hiidenpalo, tel. +358 20 703 5668
CFO Sarianne Kirvesmäki, tel. +358 20 703 5134