Elo’s investment operations were successful despite the difficulties in the global economy

Elo Interim Report 1 January – 30 June 2015

• The return on Elo’s investment operations was 4.9 per cent in the first half of 2015.
• By the end of June, the market value of investments had increased to EUR 20.7 billion.
• Solvency improved from the level at the start of the year. The solvency ratio was 27.5 per cent of technical provisions while the solvency capital was 2.4 times the solvency limit.
• The efficiency of operations increased further and the expense loading ratio was 77 per cent.

“Overall, the first half of the year was a success for Elo. The good returns on investment operations were reflected in our solvency and the solvency ratio increased to 27.5 per cent of technical provisions compared with 25.8 per cent at the beginning of the year. The efficiency of our operations was outstanding, especially taking into account the fact that we are still working on building our company. During the first half of the year, we completed the majority of the system projects required by the merger so we are now able to focus even more on developing our services,” says Satu Huber who became Managing Director of Elo at the start of June.

Elo’s solvency capital was EUR 4,493 million (4,042 million on 30.6.2014) at the end of June. Elo used 77 (80) per cent of the expense loading included in the insurance contributions for operating expenses.

Equity investment generated the best returns

The overall return on Elo’s investments was 4.9 (3.6) per cent at the end of June.

“During the first half of the year, Elo’s investment income remained at a good level despite the strong movements on the equity and fixed income markets during the second quarter. There was no significant change in the return level at the end of June from that in March. Returns were positive for all asset classes during the first half of the year,” says Hanna Hiidenpalo, Director and Chief Investment Officer.

Equity investments were the best performing asset class, with returns reaching 13.4 (5.4) per cent. Returns on European equities were especially good during the first half of the year, at 13.8 per cent. Returns on private equity investments were also at an excellent level, at 14.6 (7.5) per cent.

“Elo’s equity risk was reduced to some extent from April onwards. Equity market pricing has remained higher than average and there has been no clear change for the better in the current year’s return expectations,” says Hiidenpalo.

Diversification of Elo’s interest rate risk investments outside the euro area was continued and we kept the interest rate position moderate by underweighting Europe in particular. Exposure to corporate bonds was reduced during the spring. As a result of the low interest rates, returns for fixed-income investments totalled 0.2 (2.9) per cent.

In other investments, returns on hedge fund investments were 1.7 (3.2) per cent. Returns on property investments totalled 4.4 (2.3) per cent.

The five-year average nominal return on Elo’s investments was 5.8 per cent (1 July 2010 – 30 June 2015), and the ten-year average nominal return was 5.1 per cent (1 July 2005 – 30 June 2015). For the years 2005–2013, the calculation is based on the returns earned by the LocalTapiola Pension Company.

Market leader in number of insurance policies

Elo is the market leader both in TyEL and YEL pension insurance in terms of the number of policies. At the end of June Elo had 45,800 (47,100) TyEL insurance policies and 85,600 (88,500) YEL insurance policies. In total 470,300 (478,800) self-employed persons and employees had insurance policies at Elo.

“In the first half of the year we did very well in attracting new customers. The three transfer rounds of employment pension policies in 2015 have increased Elo’s premium income by EUR 3.4 million,” says Satu Huber.

During the first half of the year Elo paid out a total of about EUR 1,414 (1,352) million in pensions to 220,000 (221,000) pension recipients.

Finland’s financial challenges continue

Central banks’ measures and the expectations related to these are still having a pivotal impact on the development of the global economy and on the investment environment. The European Central Bank will continue to implement its considerable monetary policy stimulus measures well into next year, which will support fixed income and equity investments. On the other hand the US Federal Reserve is already preparing to carefully raise interest rates. Divergence between different economic regions may increase the instability of investment income and foreign currency markets, so the investment outlook for the remainder of the year is uncertain.

“The most significant short-term risk in the global economy is related to the development of the Chinese economy. The country is seeking to change its traditional investment- and export-driven growth model at the same time as equity market performance seems to have diverged completely from the development of the real economy. The young equity market in China overheated at the beginning of the year and during the summer the country’s economic policy officials used very exceptional methods to try and stabilise the market movements. In the euro area, progress has been made in the attempts to solve the financial crisis in Greece, but the situation is still uncertain and challenging,” says Hanna Hiidenpalo.

The economic circumstances in Finland still look challenging.

“Even though economic performance has already picked up in the rest of Europe this has not yet boosted Finnish industry, which is driven by investment and production equipment. The decline in the price of crude oil in recent weeks is not helping the financial crisis in Russia, which is an important trade partner for Finland, and is also helping to slow our economic recovery. Industrial business barometers and consumer outlooks suggest that the rest of the year will continue to be weak,” says Hiidenpalo.

Elo Mutual Pension Insurance Company Interim Report 1 January − 30 June 2015 (pdf) >

The figures are unaudited parent company figures.

For further information:
Satu Huber, Managing Director, tel. +358 20 703 5811
Hanna Hiidenpalo, Director and Chief Investment Officer, tel. +358 20 703 5668
Sarianne Kirvesmäki, Director, Finance, tel. +358 20 703 5134