Ilmarinen’s return on investments 3.2 per cent and efficiency improved further

The driver of the 3.2 per cent return on the investment portfolio was the listed equity market, where positive performance focused on the technology sector. Higher market interest rates dampened fixed income investment returns. Central banks are expected to start cutting key interest rates during the year, but in Q1, rate cut expectations moderated and bets on their timing were dialled back. The long-term average return since 1997 was 5.8 per cent. The market value of investments was EUR 60.5 billion.

Digitalisation and process development underlying the productivity leap

Ilmarinen’s cost-effectiveness improved further, as premiums written grew 2 per cent and operating expenses financed using loading income fell 2 per cent, which was 0.35 per cent of the TyEL payroll and YEL income of the insured. In January–March, we paid approximately EUR 1,885 million in pensions to around 450,000 pensioners. 

“Over the past six years, Ilmarinen has successfully reduced the annual costs for managing pension insurance by a third, or close to EUR 50 million, for our more than 1.1 million customers. At the same time, premiums written have grown 34 per cent. Pensions are part of public social security and we want to continuously manage them even more effectively,” says Jouko Pölönen.

Underlying the productivity leap is the extremely successful merger with Etera in 2018 and the repatriation of the resulting synergy benefits. The key factors for improving profitability have been the development of digital service processes and building a culture of continuous improvement. Our customers see the benefits of improved cost-effectiveness directly in their insurance contributions.

Weakening employment is reflected in Ilmarinen’s business cycle index 

Employment has weakened since last summer and the political strikes in Q1 added to the economic and employment challenges. The number of employees in the companies belonging to Ilmarinen’s business cycle index fell by 2.5 per cent year-on-year during January–March. 

“Employment weakened in all sectors and most of all in staff leasing and construction. From a geographical viewpoint, the number of employees fell in all parts of Finland. Growth and improvement in productivity are needed to turn public debt around. When employment weakens, productivity development gains all the more importance. Utilising digitalisation, automation and AI in the continuous development of processes is essential,” Pölönen explains. 

Higher long-term returns are needed for pension assets

The pension reform will be prepared in accordance with the Government Programme with key labour market organisations in tripartite negotiations by the end of January 2025. The goal is to ensure the financial sustainability of the pension system and to secure an adequate level of benefits. The amendments must strengthen public finances in the long term by approximately 0.4 percentage points in relation to the GDP, representing some one billion euros. 

“As the working age population declines, among other things due to a low birth rate, the return on investments will play a greater role in ensuring the financial sustainability of the pension system. Increasing the return on investments is in fact the most effective way to improve the pension system’s financial and social sustainability. The solvency framework should be reshaped so as to enable pension companies to seek better long-term returns,” Pölönen says. 

Ilmarinen’s January–March 2024 development in brief

• The return on Ilmarinen’s investment portfolio was 3.2 (2.2) per cent, or EUR 1.9 billion. The market value of investments grew to EUR 60.5 (58.9) billion. The long-term average return on investments was 5.8 per cent as of 1997. This corresponds to an annual real return of 3.8 per cent. 
• The total result rose to EUR 778 (407) million. 
• Premiums written rose by 2 per cent to EUR 1,690 (1,660) million. Pensions paid rose by 8 per cent to EUR 1,885 (1,754) million. 
• Net customer acquisition was EUR 29 (70) million and rolling customer retention for the previous 12 months was 96.3 (97.1) per cent. 
• Operating expenses financed using loading income decreased 2 per cent to EUR 24 (25) million and were 0.35 (0.37) per cent of the TyEL payroll and YEL income of the insured. 
• Solvency capital increased to EUR 13.0 (12.2) billion, and the solvency ratio strengthened to 126.6 (125.4) per cent.
• Future prospects: Ilmarinen’s premiums written are expected to grow as the earnings level rises.

Read more:

• Ilmarinen’s interim report 1 January–31 April 2024 (PDF)
• Interim report images (PDF)