Elo’s investment assets increased to record level despite corona crisis
Elo’s financial statements 2020, unaudited and not approved by the Board of Directors: The market value of Elo’s investments was EUR 25.9 (25.3) billion at the end of 2020. The return on investments was 3.6 per cent (13.0 per cent). The solvency ratio was 123.7 (124.4) per cent and solvency capital was 1.6 (1.6) times the solvency limit.
“Despite the unexpected downturn of the market due to the coronavirus pandemic, Elo’s solvency has shown a remarkable increase and the solvency capital nearly reached the level of last year,” says Satu Huber, CEO of Elo.
With share prices at their lowest level in spring 2020, Elo's solvency capital breached the statutory solvency limit for one day, an indicator measuring the risk level of investments. However, Elo’s assets continuously clearly exceeded the pension liabilities of the company.
The nominal return of Elo’s investments was 5.5 per cent on average and the real return 4.7 per cent. The average 10-year nominal return on Elo’s investments was 5.3 per cent and the real return was 4.1 per cent.
“The coronavirus pandemic resulted in a rapid and deep recession in the early part of 2020 because of all the restrictions to stop the spreading of the virus. However, economic growth picked up during the summer and early autumn. So far, Finnish economy has coped well with the recession caused by the coronavirus relatively well. The TyEL policyholders’ payroll decreased by 1.5 per cent,” Huber says.
Successful investment strategies resulted in a positive return on investment
“Our chosen investment strategies have proved effective on the market despite the unpredictability of the coronavirus crisis. The return for the asset classes was positive and mainly in line with market trends,” says Hanna Hiidenpalo, Chief Investment Officer at Elo.
Elo’s equity investments returned 4.5 (21.9) per cent, fixed income investments 6.0 (6.2) per cent, real estate investments 2.2 (9.1) per cent and other investments 6.0 (5.6) percent. The result of investment operations at fair values was EUR –30.0 million (EUR 1207.0 million).
Elo’s equity investments benefitted from extensive diversification, eliminating single risk concentrations. The best performers in the portfolio were the US and, in particular, emerging market equities, which generated clearly better results than market returns, reflecting the general market developments. In Europe, however, the market development remained negative, which had an impact on the return. The return on unlisted equity and private equity investments supported the overall performance. The return on Elo’s equity investment was 4.5 (21.9) per cent.
In line with its long-term strategy, Elo’s real estate investments have been widely diversified among different types of real estate. Ownership concentrates on areas and properties that are estimated to have stable demand over a long term both in Finland and abroad. The return of Elo’s entire real estate portfolio remained positive at 2.2 (9.1) per cent despite the impact of the pandemic.
Among Elo’s other investments, the hedge fund investments have performed as expected according to the strategy in a very challenging investment environment. The return was a highly satisfactory 7.3 (5.5) per cent., . The weakening of the USD showed in the return due to the extensive geographic diversification of the investments. Return impact was mitigated by currency hedging strategy.
Finnish economy fared well
“The economic stimulus measures adopted by central banks as well as the strong increase in market liquidity played a significant role in 2020. Once past the most acute crisis, the market recovered and strengthened throughout the rest of 2020,” Hiidenpalo says.
Compared to many other economies, Finnish economy has coped with the recession due to the coronavirus relatively well. The Government of Finland has supported businesses with extensive stimulus measures and the country has been able to avoid mass unemployment thanks to the system allowing temporary lay-offs and various forms of public aid.
According to forecasts, Finnish economy is looking to recover during the second quarter of 2021 with the strongest spurt expected to take place in the second half of the year.
Following the coronavirus crisis, indebtedness will increase significantly in all major economies. In the context of slow real growth, overcoming the debt burden requires sufficient long-term economic growth and inflation rates.
The coronavirus changed retirement plans
The impact of the coronavirus pandemic on the number of pension and rehabilitation applications was closely monitored throughout the year.
“Many customers approached us with questions about part-time retirement and this option was widely discussed in the media. However, we did not see any significant increase in actual applications. Moreover, the number of old-age pension applications was slightly lower than expected in the autumn,” says Satu Huber.
The number of disability pension decisions issued continued to increase, albeit slightly more slowly the previously. The most common grounds cited for disability pension are mental health disorders and musculoskeletal illnesses. In 2020, mental health disorders were the most common reason for applying for new disability pensions for the second year running.
Elo has systematically developed pension application handling and has succeeded in making the process faster and easier for the applicant. The processing times for pension decisions at Elo have been faster than the market average for the entire existence of Elo. In 2020, Elo’s customers received their decisions 18 per cent faster than the average pension insurance company customer.
Each month, approximately 243,600 pensioners were paid their pension by Elo. The number of pension decisions issued on the basis of an application in 2020 was 25,800 (26,000), of which old-age pension decisions accounted for 6,815 (7,598). The number of disability pension decisions was 12,466 (12,105), and of partial early old-age pension decisions 2,248 (2,132).
A busy year in customer service
The highly exceptional year showed in a steep increase in customer service inquiries while many customer service advisers worked from home. Despite these challenges, the quality of customer service in insurance and pension services remained high. During the spring and summer of 2020, the number of contacts from tenants and financial services sectors increased.
“Entrepreneurs were in touch with our insurance services more than usual during the spring with inquiries related to extending the deadlines of their insurance invoices or changes to their policies. In pension services, customers needed more support than normal in making personal decisions and exploring their options to retire,” says Huber.
Investments in online service development could be seen in good customer feedback both in pension and insurance services.
Progress made in corporate responsibility development
Elo updated its climate strategy during 2020. According to the new strategy, Elo commits to an investment portfolio that is aligned with the objectives of the Paris Agreement. The targets will be set in stages, beginning with asset classes and moving towards the level of strategic allocation.
Elo is engaged in the Paris Alignment Investment Initiative of the IIGCC. The aim of the initiative is to find out how the portfolios of institutional investors would best support achieving the goals of the Paris Agreement and what impacts this would have. The first framework version was released in August 2020 and the development work continues this year.
Elo joined the Climate Leadership Coalition (CLC) in December 2020. CLC is the largest non-profit climate business network in Europe with the aim of making a significant positive climate impact together through business solutions.
Elo also renewed its corporate responsibility programme in 2020. The programme is closely interlinked with the company’s core tasks and the regulatory environment. The three main themes in the programme are society, sustainable working world and sustainable environment.
Premiums declined, brisk sales of self-employed persons’ pension insurance
At the end of 2020, Elo managed 48,300 TyEL and 83,600 YEL insurance policies. The total number of self-employed persons and employees insured by Elo at the end of the year was 476,700. Elo is the market leader in YEL pension insurance in terms of the number of policies. One in three employer companies are insured by Elo.
As the coronavirus pandemic intensified, the employee pension contributions were temporarily lowered from May until the end of the year on the mutual agreement between labour market organisations. Largely due to this decision, the TyEL insurance premiums written decreased by approximately 10 per cent, standing at EUR 3,205.00 (3,558.10) million. The TyEL policyholders’ payroll remained approximately 1.5 percent lower than in 2019. The premiums written for insurance under the Self-Employed Persons’ Pensions Act (YEL insurance) remained on the same level as in the previous year at EUR 410.7 million (EUR 410.4 million). EUR 18.1 million (EUR 21.4 million) was entered as credit losses on insurance premiums in 2020.
Elo’s result from transfer business was EUR 26 million (EUR 69 million) negative in 2020 as a whole. The net number of TyEL insurance policies transferred to Elo was +358 (-80). The net number of YEL policies transferred to Elo was +1043 (+416). Elo’s market share improved in new YEL insurance policies.
The Financial Supervisory Authority (FIN-FSA) appointed an authorised representative on 11 December 2020 to supervise Elo’s operations. From the perspective of FIN-FSA, there was a need to identify and locate issues, which might undermine the integrity of Elo’s internal corporate governance, in a more detailed manner than conventional supervisory instruments would allow and to ensure that any problems identified will be duly addressed and remedied. Throughout 2020, Elo has focused on addressing the issues raised by the FIN-FSA and will continue to do so in the future in order to ensure robust corporate governance. The FIN-FSA will review the need to continue the appointment of the authorised representative in June 2021 at the latest.
The information presented is unaudited and not yet approved by the Board of Directors. Elo will publish its audited financial statements approved by the Board of Directors in week 9 on Elo’s website.
Satu Huber, CEO, tel. +358 (0)20 703 5811 email@example.com
Hanna Hiidenpalo, CIO, tel. +358 (0)20 703 5668 firstname.lastname@example.org
Sarianne Kirvesmäki, CFO, tel. +358 (0)20 703 5134 email@example.com