Financial statements 2017: Excellent investment result accelerated by equity returns

2017 proved to be an excellent year for Ilmarinen’s investment operations. Return on investments equalled 7.2 per cent (4.8% in 2016), or EUR 2.7 billion.

“The investment year clearly exceeded expectations. All of the asset classes yielded good returns. Economic development in all of the main market areas was positive and, thanks to improved corporate earnings, equity investments performed particularly well,” says Ilmarinen’s President and CEO Timo Ritakallio.

Of the main asset classes, equity investments generated the best return at 14.8 per cent. Return on non-listed equities rose to as much as 26.8 per cent. Fixed income investments returned 1.8 per cent and real estate investments 5.0 per cent.

In real estate investments, Ilmarinen continued to diversify onto the international real estate markets, in accordance with its strategy. Over the course of the year, Ilmarinen agreed on real estate collaboration with the New York Life life insurance company on the US commercial property markets and invested in office properties in the UK, Germany and the Netherlands.

Ilmarinen’s long-term real annual return on investments since 1997 has been on average 4.3 per cent. This clearly exceeds the current 3.0 per cent return assumption used by the Finnish Centre for Pensions in its long-term calculations.

Solvency continued to strengthen. At the end of 2017, Ilmarinen’s solvency capital was EUR 9.4 (8.5) billion and the solvency ratio was 131.2 (129.2) per cent. The solvency position was 1.8 (2.0) times the solvency limit.

Based on preliminary data, the investments of Etera, which merged into Ilmarinen at the turn of the year, returned 6.0 per cent and its solvency ratio was 116.4 per cent in 2017. Etera’s final accounts will be published later in February. The investment assets of the merged Ilmarinen came to more than EUR 45.8 billion at the start of 2018.

Client bonuses at record level

At the end of the year, 38,800 (38,100) companies had insured their employees with Ilmarinen. The total number of insured was 566,900 (563,500) people. The employees’ share of this was 503,800 (502,000) and that of self-employed persons was 63,100 (61,500). The company’s premiums written stood at EUR 4.3 (4.3) billion.

After the merger this year, the number of people insured with Ilmarinen was close to 690,000.

As in previous years, Ilmarinen’s cost-effectiveness was at a good level. Despite the one-time costs resulting from preparations for the merger, the operating expenses totalled EUR 150.3 (147.2) million. The ratio of operating expenses to the expense loading components available for them, measuring cost-efficiency, was 81.1 per cent. The expense loading component contained in the insurance contribution was reduced as of 2017, so the ratio of operating expenses to expense loading components is not directly comparable to the previous year.

Thanks to good solvency and cost-efficiency, bonuses paid by Ilmarinen to client companies rose to a record-high level at EUR 120 (102) million. They were 0.7 (0.6) per cent of the payroll of the companies insured with Ilmarinen.

“The synergies gained through the merger will result in improved cost-effectiveness and, in turn, even better client bonuses for upcoming years. Our objective is to annually save at least EUR 20 million in total expense loading and EUR 20 million in investment operation costs, beginning in 2020. All of the savings in expense loading will be transferred to customers,” says Ritakallio.

Partial early old-age pension gains interest

The pension reform that entered into force at the start of 2017 will gradually raise the retirement age and changed the pension accrual rules. The reform also brought with it two new types of pension. Ilmarinen’s customers were interested in the new partial early old-age pension and almost 3,000 decisions were issued during the year. The years-of-service pension, meant for people who have had a long career in a demanding profession, cannot begin earlier than February 2018 and the first years-of-service pension was granted in late 2017.

The number of both pension recipients and the amount of pensions paid increased. At the end of the year, Ilmarinen paid out pensions to 336,700 (329,300) people, in a total amount of EUR 4.7 (4.6) billion. From the start of 2018, Ilmarinen will pay pension to 469,600 people.

Altogether 28,600 (25,900) new pension decisions were issued by Ilmarinen in 2017. New partial early old-age pensions contributed to this growth.

“Ilmarinen has invested in the automation of pension processing and in developing electronic services. Fifty-seven per cent of old-age pensions are applied for online and we can process applications in four minutes, at our fastest. We issue old-age pension decisions faster than the sector average,” says Ritakallio.

A better working life for Finnish workplaces

In honour of Finland’s centennial, Ilmarinen organised a campaign called ‘A hundred deeds for a better working life’. Through the campaign, Ilmarinen challenged companies to come up with and do good deeds that increase the well-being and activeness of their personnel, improve work capacity and create positive energy. The deeds were collected on the campaign website, which also continues to function as an open portal for improving working life, available to all.

Ilmarinen organised 44 Better Working Life coaching sessions for its client companies throughout Finland, attracting around 3,000 people. During the year, almost 2,400 (2,100) projects supporting well-being at work were underway and these covered 135,000 (150,000) people.

“In addition, in line with our strategy, we developed new digital services to support the well-being at work and work capacity management of our customers. For example, more than 40,000 of Ilmarinen’s client company employees have adopted the Parempi vire mobile app, which supports well-being,” says Ritakallio.

Ilmarinen also supports the management of disability risks and longer careers in its client companies through vocational rehabilitation. More than 7,000 benefit decisions related to rehabilitation were made in 2017, which was a 10.7 per cent increase on the previous year.

The objective of the well-being at work services and rehabilitation is to reduce the costs arising from disability. Last year, Ilmarinen paid approximately EUR 400 (418) million in disability pensions, which was 8.7 per cent of the total pension expenditure.

As the sector’s largest player, Ilmarinen wishes to take on an even stronger role in supporting work capacity, productivity and success in Finnish companies.

“On average, we spend almost half of our adult lives at work, which is why it’s worth investing in the quality of working life. It also has a direct impact on productivity and, as a result, on the success of companies. We promise to build a better working life together with our customers. The merged company offers even better opportunities and even more diverse services to further this end. We also challenged a group of corporate leaders to promise one thing that would contribute to making working life better this year,” says Ritakallio.

Read more:

• Report on Operations 2017
• Attachments