Elo's return on investment for the first quarter was 1.6% – Equity investments generated good returns in an uncertain financial market

Key figures for January–March 2023

• The result of investment operations at fair values was EUR 23.4 million (EUR -515.7 million).
• Net investment income was 1.6 (-1.9) per cent. 
• The market value of the investments was EUR 28.7 (28.8) billion.
• The solvency ratio was 121.2 (126.1) per cent and solvency capital was 1.6 (1.6) times the solvency limit.
• Premiums written amounted to EUR 1.1 billion. The amount paid in pensions and other benefits was nearly at the same level. 

Increased prices and falling demand drove companies into financial difficulties in Finland

Economic growth continued to be good, and inflation remained at a high level during the first quarter. In March, however, uncertainty in the financial market increased, as certain banks in the United States and Switzerland ran into difficulties as a result of rising interest rates. With the support of central banks and supervisory authorities, the banking sector’s problems were limited to individual banks, and the situation has calmed down for the time being.

Finland’s exports were weak and confidence in the economic outlook among businesses and households remains weak. 

“Rising prices and falling demand are increasingly driving companies into financial difficulties. The amount of credit losses is expected to increase compared to the previous four years. The weakened construction cycle also overshadows domestic demand. However, the companies’ profitability remained good,” Elo’s CEO Carl Pettersson comments on the first quarter.

Equity investments generated good returns in an uncertain financial market

The situation in the banking sector increased uncertainty in the financial markets and expectations for economic growth weakened. The interest rate market, in particular, saw strong movements. 

“The overall return on Elo’s investments continued to be positive also in the first quarter. Reduced energy prices and the opening up of China maintained the good dynamics of the economy and the equity market, and thus equity investments generated good returns,” says Hanna Hiidenpalo, Deputy CEO of Elo.

Equity investments generated a return of 2.6 (-3.3) per cent. The share of listed equities has remained moderate in Elo’s investment portfolio, and they generated a return of 4.6 (-7.7) per cent. Fixed income investments generated a return of 1.3 (-1.7) per cent. The interest rate sensitivity of Elo’s investments was increased in the US market in particular. 

Due to the rise in interest rates, the real estate investment market is still in a period of transition, which is why transaction volume continued to be low. The return on real estate investments was -0.3 (1.3) per cent.

Carbon-neutral energy use of Elo’s real estate investments by 2027

Elo’s Board of Directors approved the climate policy 2023–2030 for investments in February. In addition to the climate policy, responsibility targets were set for Elo’s Finnish real estate investments for 2023–2030. Typically in real estate, the focus is on reducing the environmental impact. 
 
“By 2027, Elo will be carbon neutral in terms of the energy use of direct real estate investments in Finland. All electricity purchased by Elo is already emission-free, and the transition to renewable district heat will take place in phases over the next few years,” Hiidenpalo says.

Economic growth is weakening, the situation in the banking sector is uncertain

The outlook for the global economy is uncertain. Even if central banks succeeded in preventing contagion effects in the banking sector and maintaining stable financial markets, financing conditions may tighten significantly due to weakened risk appetite among investors and financial institutions. This is weakening the conditions for growth in the real economy. 

Inflation in the euro zone remains high, and weakening purchasing power may burden domestic demand. In the United States, growth expectations are split between recession and increasing overheating. The likelihood of a recession increases if the challenges in the banking sector continue. The effects of monetary policy tightening are visible in the economy with a delay, and the problems in the banking sector are a sign of negative effects. As a result, the financial market expects central banks to increase interest rates only marginally.

The comparison figures in brackets are figures for 31 March 2022.

Interim Report 1 January – 31 March 2023 >
Interim Report 1 January – 31 March 2023 presentation >

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