Elo aims to be the most preferred employment pension company

Key figures January–September 2022

• Elo’s net return on investment operations was -4.9 per cent (9.4 per cent). 
• The market value of Elo’s investments was EUR 28.0 (28.3) billion.
• The result at fair values was EUR -1,447.6 (999.7) million.
• The solvency ratio was 122.1 (126.9) per cent and solvency capital was 1.5 times the solvency limit. 
• Premiums written came to EUR 3.3 billion, which was nearly at the same level as the amount paid in pensions and other benefits.
• The expense loading ratio was 72.8 (71.6) per cent.
  
  

Focus on changes in the operating environment and customer behaviours

During the review period, Elo completed change negotiations to clarify Elo’s organisation and achieve higher efficiency, as well as to respond to changes in the operating environment and customer behaviours. 

“As a result of the change negotiations, 44 work tasks were reduced at Elo and the organisation structure, employees’ duties and job descriptions were changed. Despite the difficult decisions, we conducted the change negotiations in an exceptionally open and constructive atmosphere,” says Carl Pettersson, CEO of Elo.

The strategy completed in October will steer Elo towards the goal of being the most attractive company in the sector in 2025.

“Being the most preferred employment pension company is a vision that is very bold and ambitious. In order to achieve it, we need to be the industry’s fastest-growing and most customer-oriented company, and our service capabilities must be strong. Our personnel experience is excellent. We are a pioneer in work ability services, and we take care of the sufficient solvency of the employment pension company,” Pettersson says. 

Finnish companies are in a better position

Global growth slowed down further in the third quarter. Growth was limited by tighter financing conditions and a reduction in real purchasing power as a result of inflation.  

Europe is facing an energy crisis and a recession is considered to be possible. The situation is particularly precarious in Germany, whose energy supply has been heavily reliant on energy imports from Russia. The EU member states introduced extensive fiscal support measures to support businesses and households and to achieve a positive growth impact.

“Finnish companies are also balancing in the midst of uncertain prospects. To counterbalance these concerns, I would like to point out that the balance sheets of Finnish companies are strong, protecting the companies in the challenging market situation. In addition, our domestic energy production is more diversified than the unfortunate situation in Central Europe,” Pettersson says.

Central banks’ rate hikes will affect the financial market

Several central banks control inflation with rate hikes, and the impacts are broadly visible in the financial market. Market interest rates rose substantially and returns on equities deteriorated. 

“The total return on Elo's investments remained negative, as the returns of most listed asset classes were weak. On the other hand, the risks were diversified by the positive return on real estate and infrastructure investments,” says Hanna Hiidenpalo, Deputy CEO of Elo.

Elo’s fixed income investments generated a return of -3.2 (0.6) per cent since the start of the year. Interest rate hedges continued to help to mitigate losses from strongly rising market rates.

Private equity investments further mitigated the negative result on equity investments, -10.1 (18.1). Equity pricing became more moderate, but expected returns remained high in relation to the weakening economy.
 
The deterioration of the general economic situation during the year to date did not yet affect trading in real estate investments. The return on real estate investments was 5.2 (3.5) per cent. The uncertainty of the operating environment will probably diminish transaction volume in the market towards the end of the year, and real estate yield requirements will also be subject to upward pressure.

“From the point of view of diversification of investment assets, the interdependence between the equity and fixed income markets is crucial. If central banks manage to contain inflation, the benefits of investment diversification will increase. Due to the historically strong interest rate level, the outlook for fixed income investments is better than it has been for years,” says Hiidenpalo. 

A global recession is likely

Inflation will also determine the success of the financial market next year. The rate of increase in consumer prices is too high in relation to central banks’ objectives and the risk of inflation taking root has increased. On the other hand, the likelihood of a global recession has increased significantly. 

Economic uncertainty is testing Finnish businesses and the outlook for exports has become gloomier with the slowing down of global growth. Finland’s economic situation is expected to be significantly weaker next year than this year, as GDP is not expected to grow much.

The comparison figures in brackets are figures for 30 September 2021

Further information:
CEO Carl Pettersson, interview requests Communications Manager Sara Salomaa, tel. +358 44 550 5450
Deputy CEO, CIO Hanna Hiidenpalo, tel. +358 20 703 5668
CFO Sarianne Kirvesmäki, tel. +358 20 703 5134

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