Best year of the decade in investments – the return on Elo’s investments was 13 per cent
Elo’s investment assets have increased by EUR 10.7 billion since 2010, amounting to EUR 25.3 billion at the end of the year. The average long-term nominal annual return for the same period is 5.9 per cent.
The market value of Elo’s investments was EUR 25.3 (22.6) billion at the end of 2019. The return on investments was 13.0 per cent (-1.4 per cent). The solvency capital was 1.6 (1.6) times the solvency limit at the end of the year. The solvency ratio was 124.4 (120.6) per cent.
Long-term returns on investments have been at an excellent level for the past decade.
The average 5-year nominal return on Elo’s investments was 5.8 per cent and the average 10-year nominal return was 5.9 per cent. The average real return was 5.1 per cent and the average 10-year real return was 4.5 per cent.
Investment market returns were excellent in all major asset classes“In 2019, the investment market generated the best result of the decade. In addition to good return on equities, the return on fixed income investments also exceeded all expectations in the exceptional environment. Real estate investments also generated an excellent return. The strong comeback of central banks’ stimulating measures and continued economic growth were a significant theme in investments during the year,” says Hanna Hiidenpalo, Elo’s Chief Investment Officer.
Elo’s equity investments generated a return of 21.2 per cent (-4.7 per cent), fixed income investments 6.2 per cent (-0.8 per cent) and real estate investments 9.1 per cent (5.8 per cent).
Global economic growth slowed down in 2019 due to industrial stagnation in key industrial countries. The threat of economic downturn, which was still considered to be significant at the beginning of the year, ceded during the latter half of the year with central banks returning to a stimulating monetary policy.
The Finnish economy remained more favourable than that of key competitors in 2019, and an industrial downturn similar to that in Germany, a key country for export, was not seen. The structure of economic growth became more balanced, driven by both foreign trade and domestic demand. The growth in employment rates continued to be rapid.
We succeeded in allocation and weighting choices between asset classes“The excellent returns were based on successful choices between different asset classes. Underlying the good investment returns in 2019 was that we increased the risk level of Elo’s managed assets early in the year and kept it sufficiently high throughout the year. Moreover, we succeeded in the duration management of fixed income investments and management of currency exposures,” Hiidenpalo says.
Elo’s listed equities generated a return of 25.2 per cent (-10.2 per cent). Following the correction in late 2018, the equity market experienced a rapid upturn globally at the very beginning of the year. The favourable development continued throughout the year, even though the upswing levelled off and market volatility increased. The equities with the highest return were US and European equities.
The return from corporate bonds was 8.9 per cent (-1.5 per cent). The overall return from bonds was 8.2 per cent (-1.2 per cent). Interest rates decreased for most of the year, which was seen as strong returns in both corporate and sovereign bonds.
In Finland, the demand for real estate continued to be strongIn the Finnish market, the demand for real estate continued to be strong and the volume of transactions remained at a high level for the fourth consecutive year. In addition, international investors’ interest in the Finnish real estate market continued in office and residential investments in particular. In Elo’s direct real estate investments, favourable development of rental income and occupancy rates continued.
Measures to develop the current portfolio were continued in Finnish real estate investments according to the strategy. The most significant investment made during 2019 was the transaction that merged the Jumbo Shopping Centre and Flamingo Entertainment Centre. Direct real estate investments returned 10.2 per cent (5.7 per cent) and real estate investment funds 5.5 per cent (6.3 per cent).
In private equity investments, the number of new commitments to private equity and debt oan funds increased throughout the year. Private debt funds have become an increasingly significant part of private equity investments. Private equity investments generated a return of 8.9 per cent (16.0 per cent).
Economic outlook for 2020The global economic outlook at the beginning of 2020 seems more positive than a year before.
“The change in global trade policy continues to be a key risk to companies’ investments – increased obstacles to trade threaten the structures of both global trade and companies’ production processes. Consumers and the service sector are the driver of economic growth in key economies,” Hiidenpalo says.
The risks of the global economy and market are associated with China balancing between economic growth and indebtedness, the UK’s departure from the EU and the US election year, which may cause turbulence in the country’s policy.
According to most forecasts, Finland’s economic growth is slowing down from last year’s growth of approximately 1.5 per cent. Our growth outlook is shadowed by the subdued global industrial cycle affecting our export demand and investments by companies. On the other hand, the lighter global financing conditions also allow for a more positive outcome than expected for Finland. The importance of consumption as a cornerstone of economic growth is emphasised as foreign trade and investment growth become weaker.
In the investment market, the year 2020 has gotten off to a good start, and the more positive economic outlook also spread to the investment market. The impacts of the corona virus remain to be seen at this stage.
Work to mitigate climate change continues – influencing plays a key roleIn 2019, we updated our principles of responsible investments and ownership policy. We continued the work to mitigate climate change by updating our exclusion criteria with regard to coal and taking part in diverse engagement initiatives with other investors. Elo was one of the signatories to the IIGCC’s initiative to EU leaders, emphasising the achievement of the target for carbon neutrality in Europe by 2050 and aligning all essential EU regulations with the Paris Agreement.
In 2019, Elo also reported in compliance with the TCFD reporting framework, and our report won the Transparent Asset Owner Award for transparent ESG reporting. We joined the IIGCC’s Paris Alignment Initiative. The aim of the initiative is to find out how the portfolios of institutional investors would best support the achievement of the goals of the Paris Agreement and which would be the implications.
Fast pension decisions – increase in disability pensionsElo’s customers have received pension decisions faster than the customers of other employment pension companies for years. In 2019, we made pension decisions on average approximately 25 per cent faster than the overall average for other employment pension companies. The incomes register made pension decisions even faster.
The growth in applications for disability pension, which has been seen throughout the employment pension sector, was also visible at Elo. In 2019, we made 12,105 disability pension decisions by application, which is approximately 5 per cent more than in 2018. For the first time during the existence of Elo, mental health disorders were the most common reason for new disability pensions. The growth has been similar in the employment pension insurance industry in general.
“The growth in disability pension applications is concerning. No certain single reason for the growth has been found. However, more effective and faster care chains are required when working capacity wavers to keep people at work instead of disability pension. We need to focus on the employment and work ability of the working age population. Everyone’s contribution is needed in Finland,” Huber says.
The number of pension decisions issued on the basis of an application in 2019 was 26,000. The number of old-age pension decisions issued on the basis of an application was 7,598. The number of partial early old-age pensions increased, with 2,132 decisions, which is 11.5 per cent more than the previous year. The total number of self-employed persons and employees insured by Elo at the end of the year was close to half a million.
Excellent development in customer satisfaction
The national income register was adopted in January 2019. The adoption of the national incomes register represented a major change our customers as well as Elo. Our aim was to manage the transition to the incomes register so that the customers are given the best information possible about the impact of the incomes register on their operations. Based on our performance indicators and customer feedback, we achieved our goal.
“Our focus on digitalisation in the development of the customer experience and our efforts to develop personal service have produced good results. This is evidenced by good customer satisfaction for insurance services as well as pension services, also during major changes, such as the adoption of the incomes register,” Huber says.
The telephone service of Elo’s insurance services repeatedly won the Customer’s Voice competition in May. The Customer’s Voice index was excellent at 84.96. The previous year’s index score was 84.10. The Customer’s Voice index has a strong correlation with the NPS.
Elo’s Board of Directors confirmed the company’s new strategy for 2020–2022 in December 2019.
“Our strategy is based on our mission statement of taking care of customers’ pension interests responsibly. Its themes are responsibly competitive, customer experience as a competitive advantage and reforming competence,” Huber says.
According to the annual personnel survey, good development for the sixth consecutive time. The PeoplePower index for the survey as a whole was 72.8, winning Elo the Most Inspiring Workplaces in Finland recognition.
The figures are unaudited preliminary information from the financial statements. Elo will publish the financial statements for 2019 in full in the week beginning on 24 February on Elo’s website as a PDF file.
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