Ilmarinen's return on investment rose to 7.4 per cent, solvency strengthened and cost efficiency improved

“The investment environment has been favourable with inflation slowing and central banks lowering their key interest rates. In the period January–September, the return on Ilmarinen’s investment portfolio was 7.4 per cent, or EUR 4.4 billion. Our solvency strengthened and our cost efficiency improved further. Premiums written Increased by 2 per cent and management costs decreased by 3 per cent,” says Jouko Pölönen, President and CEO of Ilmarinen.  

Best returns from the US stock market

Global stock markets have performed positively over the year, but regional differences in returns have been large. The weaker return on the Finnish equity market early in the year was the result of muted earnings performance. Interest rates on government bonds fell after the summer. Inflation slowed and central bank key interest rates started to fall.

“The main driver of Ilmarinen's positive return on investment was the listed stock market. Investments in US equities performed particularly well. The fall in interest rates that started towards the end of the summer improved the return on the fixed income portfolio in the third quarter," says Ilmarinen's Chief Investment Officer, Mikko Mursula.

In January–September, Ilmarinen's return on equity investments was 11.9 per cent, and on fixed-income investments 4.6 per cent.

Ilmarinen's long-term average return on investments was 5.8 per cent as of 1997. This corresponds to an annual real return of 3.9 per cent. 

Premiums written increased and cost effectiveness further improved 

Premiums written rose by 2 per cent to EUR 5,299 million. The growth in premiums written was due to the increase in customers’ payroll.

Pensions paid by Ilmarinen rose by 7 per cent to EUR 5,776 million. Pensions were paid to 454,000 pensioners.

Cost effectiveness improved further. In January–September, the operating expenses financed using loading income decreased by 3 per cent to EUR 69 million, which was 0.32 per cent of the payroll. For Ilmarinen's customers, efficiency is directly reflected in lower premiums.

“This year, we reduced the cost of managing TyEL insurance contributions for our customers by an average of 20 per cent. From the beginning of next year, it will continue to fall by an average of 10 per cent,” says Pölönen.  

“Pensions are part of public social security and we want to manage them more and more efficiently. We have reduced the annual costs of managing pension insurance by a third, or almost EUR 50 million, since 2018. Over the same period, premiums written have increased by 34 per cent. Our example shows that a similar leap in productivity can be made in public sector organisations," says Pölönen. 

Number of employees falling and no turnaround yet in sight

Employment in Finland has weakened since last summer. The number of employees in the companies belonging to Ilmarinen’s business cycle index fell by -2.8 per cent year-on-year during January–September. In September, the decline was -3.4 per cent.  

“Employment declined in all industries we track in the index, and there is no sign of turn for the better yet. The biggest declines were in labour hire services, construction and accommodation and food services," says Pölönen. 

Finland's pension system reliable but financial sustainability challenge

Pension reform is currently being prepared in accordance with the Government Programme with key labour market organisations in negotiations by the end of January 2025. The goal is to prepare the changes in earnings-related pension legislation to ensure financial sustainability and the benefit level. 

“The record low birthrate highlights the importance of return on investment for financial sustainability. The solvency framework should therefore be reformed to allow for better long-term returns," says Pölönen.  

In a recent international comparison, Finland's pension system is still the most reliable and transparent. Our pension system was ranked seventh in a comparison by the Mercer CFA Institute Global Pension Index, which included 48 countries. The challenge in Finland is the financial stability of the pension system, where the score dropped significantly compared to last year. 

Finns' confidence in the pension system has remained high. According to the Pension Barometer published in the summer by the Finnish Centre for Pensions, 70 per cent of respondents have confidence in the pension system and two out of three think that pension assets are managed reliably. 

January-September developments at Ilmarinen:  

• The return on Ilmarinen’s investment portfolio was 7.4 (3.3) per cent, or EUR 4.4 billion. The market value of investments grew to EUR 62.9 (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 3.9 per cent. 
• The total result rose to EUR 1,791 (233) million. 
• Premiums written rose by 2 per cent to EUR 5,299 (5,209). Pensions paid rose by 7 per cent to EUR 5,776 (5,384) million. 
• Net customer acquisition was EUR 150 (135) million and rolling customer retention for the previous 12 months was 96.5 (96.6) per cent. 
• Operating expenses financed using loading income decreased 3 per cent to EUR 69 (72) million and were 0.32 (0.34) per cent of the TyEL payroll and YEL income of the insured. 
• Solvency capital increased to EUR 14.0 (12.2) billion, and the solvency ratio strengthened to 128.1 (125.4) per cent.
• Future prospects: Ilmarinen’s premiums written are expected to grow as the earnings level rises.

Read more (In Finnish):

• Ilmarinen's interim report 1 January–30 September 2024 (PDF, in Finnish)
• Interim report picture supplement (PDF, in Finnihs)
• Ilmarinen’s business cycle index: Number of employees continues to fall (ilmarinen.fi, in Finnish)
• An international comparison: Finnish pension system still the most reliable (ilmarinen.fi, in Finnish)