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Finnish pensions had 'worst year' in 2008

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FINLAND - Suomen Pankki, the Bank of Finland, has revealed 2008 was the "worst year in the history of employee pension schemes", following the slump in equity prices.

Figures from the Bank's first quarter Financial Market Report for 2009 showed the total results of employee pension insurers last year was a negative return of more than €11bn, compared to profits of almost €900m in 2007.

The report admitted it was a mixed year for employee pension insurers as premium income increased by 11% to over €10bn, and this in turn led to changes in the market share of insurers as Ilmarinen expanded its presence through "shifts in the insurance portfolio" while Etera lost market share.

It noted, however, that despite the earnings from premiums the insurers "recorded exceptionally large losses on investment activities, as a result of which their total results turned negative".

The Bank of Finland said the employee pension insurers had posted consistently good results for several years, so while they started to weaken in 2007 a slump in equity prices and low returns from hedge funds and capital investments means "2008 was the worst year in the history of the employee pension scheme".

As a result of the financial crisis, the report revealed, insurers made "large changes" to their investment portfolios, with many reducing equity investments and transferring the funds into fixed-income and real estate.

Figures showed the proportion of equities in the total investment portfolio of the Finnish employee pension insurers fell from 47% to under 30% over the year, as the value dropped from €35bn to €20bn, while bond investments increased to 41% of €27bn by the end of 2008.

The Bank added that although pension insurers bought more bonds by Finnish non-financial corporations, these investments constituted just €600m, while domestic commercial paper investments was valued at €400m.

Hedge fund allocations also decreased slightly to €4.5bn, while just over one-tenth of the €2bn capital investments were located in Finland.

However, real estate investment remained stable with a s mall increase of a couple of million euros to just over €9bn, bringing the proportion of real estate assets in the total portfolio of the pension insurers to 14%.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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