Elo’s return on investment -4.5 per cent, authorised representative’s supervision ended in June
Economic growth slowed down and the financial market declined during the first half of the year. Elo’s return on investment was -4.5 per cent in January–June (7.8 per cent). The market value of Elo’s investments was EUR 28.0 (27.8) billion, and the result of Elo’s investment operations at fair values was EUR -1,141.3 (883.0) million. The solvency ratio was 123.6 (126.6) per cent and solvency capital was 1.5 (1.6) times the solvency limit.
The slowing down of economic growth was driven by accelerating inflation, tightening monetary policy and interest hikes. Russia’s war of aggression in Ukraine and COVID-19 lockdowns in China weakened the outlook further. In Finland, inflation was more moderate during the first half of the year, but economic growth was slower than in Europe on average.
Central banks tightened their monetary policy to rein in inflation. The US Federal Reserve (Fed) increased interest rates significantly in June. In the euro zone, concerns over economic growth and the financial market fragmentation grew, and interest rates increased especially in indebted euro countries.
“The mood in the economy became gloomy as the risk of a recession in Europe increased. The general economic environment is still characterised by uncertainty over opportunities for business growth and concerns over increasing costs; in these respects, the near-term future is difficult to foresee,” says Elo’s CEO Carl Pettersson.
“The authorised representative’s supervision of Elo ended in June. Following the changes made, our company is even more functional. Our new strategy is also about to be completed in the autumn, and the change negotiations launched in August aim to make Elo an organisation that can implement the measures pursuant to the new strategy in an agile manner,” Pettersson says.
Major differences between returns for different asset classes
The investmet environment was exceptional during the first half of the year with the considerable increase in long-term market rates. As a result, investors also had to assess the pricing of the equity market in the new interest rate environment.
“The return on Elo’s investments was negative in most listed asset classes. Some investments, such as private equity and real estate investments, continued to yield positive returns,” Elo’s Chief Investment Officer Hanna Hiidenpalo comments on the first half of the year.
Significant price movements were also seen in foreign exchange rates and prices of raw materials. The US dollar strengthened during the first half of the year following the tightened US monetary policy and investors’ weakened risk appetite.
In listed equities, the returns were negative in all main markets. Elo’s equity investments generated a return of -8.2 (15.2) per cent. The negative return was mitigated by the positive return on private equity investments.
Elo’s fixed income investments generated a return of -3.5 (0.6) per cent, and efforts to decrease the interest rate sensitivity of the investments continued in the first half of the year. Interest rate hedges helped to mitigate losses from exceptionally strongly rising market rates.
The transaction volume remained high in the real estate investment market. Real estate investments returned 3.4 (2.0) per cent.
Economic uncertainty is not about to disappear in the near-term future
Central banks will continue to play a major role in restraining inflationary pressures in an economy. The challenge is to raise interest rates and curb inflation without bringing economic growth to a standstill. The risk of a recession has increased particularly in Europe. In spite of this, the European Central Bank began interest hikes in July.
The challenges with economic growth, increasing energy prices and inflation will slow down global economic growth, which is expected to amount to approximately 3 per cent this year.
Finland’s economic growth is slower than global economic growth, less than 2 per cent this year. The earnings season of Finnish companies has been good compared to the forecasts. Nevertheless, companies’ uncertainty over the future has risen, and hence, earnings forcasts for this year have already been lowered. Companies’ earnings may decrease further due to increasing costs and weakening economic environment.
Authorised representative’s supervision ended, strategy work is in progress
Elo’s premiums written came to to EUR 2,110.3 million in the review period. At the end of June, Elo administered 438,700 (418,300) TyEL and 84,500 (83,600) YEL insurance policies. The total number of self-employed persons and employees insured by Elo was over half a million. Elo provided EUR 1,895.7 (1,817.3) million of current pensions to about 245,600 (244,000) pension recipients. The service level was excellent during the review period.
Elo prepared for the possible amendments to self-employed persons’ pension legislation. It has been identified that self-employed persons will continue to need service and guidance on YEL insurance and the possibility to engage in dialogue with the employment pension company.
On 31 May 2022, the Financial Supervisory Authority decided to end its authorised representative’s supervision of Elo on 30 June 2022. The need for change concerned administration, management system and risk control. Elo’s Executive Group structure has been simplified and its control system has been clarified. Internal control has also been enhanced and strengthened with additional resources. Following the changes made, Elo is even more functional and strong. Elo is preparing a new strategy that will be complete in the autumn.
After the period under review, Elo issued a proposal for the initiation of change negotiations in accordance with the Act on Co-operation within Undertakings. The aim of the change negotiations is to respond to changes in the operating environment and customer behaviours. The change negotiations may result in the reduction of 50 work tasks at the most. As part of the change negotiations, also new work tasks will emerge. The negotiations aim to further clarify Elo’s organisation and harmonise the operating and leadership culture.
The comparison figures in brackets are figures for 30 June 2021.
CEO Carl Pettersson, request for interview, communications manager Sara Salomaa, tel. +358 44 550 5450
Deputy CEO, investments Hanna Hiidenpalo, tel. +358 20 703 5668
CFO Sarianne Kirvesmäki, tel. +358 20 703 5134