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Tapiola Pension limits losses through equity cull

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FINLAND - Preliminary figures from Tapiola Mutual Pension Insurance Company have revealed the firm generated a negative return of 8.3% in 2008, following its decision to reduce equity allocation over the year along with its lack of hedge fund exposure.

The figures released by the pension fund ahead of its full results next month showed that despite the negative return customer bonuses are estimated to reach €13m or 0.2% of the total payroll, compared with €19.6m or 0.4% in 2007.

Satu Huber, managing director of Tapiola Pension, said although the investment income was negative, against a 4.1% return the previous year, she "considers the result good in relation to the market conditions and industry over the long-term".

While the negative return is technically a loss on investments, it is significantly better than other Finnish pension firms, as Veritas Pension Insurance, which has also released its preliminary figures, has reported an annual investment return of -15.4%, which is in line with the recent data released by Varma, Ilmarinen and the Local Government Pension Institution (LGPI). (See earlier IPE articles: Varma loses 15% in 2008; Finnish local government fund drops 20% in 2008 and Ilmarinen lost 17% in 2008

Tapiola, which had assets under management of €7.56bn in September 2008, revealed it had already reduced its equity exposure to less than 30% of the total portfolio at the end of 2007 to "prepare for the unstable market development of 2008".

Officials confirmed they went a step further last year and "successfully decreased" its proportion of equity investments to just 15% by the end of 2008, by allocating more than 70% of the portfolio to bonds.

Hanna Hiidenpalo, investment director at Tapiola Pension, said although the firm had sold international equities and equity-linked funds "well in advance before autumn 2008" the pension fund had not felt any pressure to sell Finnish equities.

"Tapiola Pension emphasises perseverance in its investments and this investment policy has not been changed," said Hildenpalo.

"We only invest in well-known objects which can be followed-up. Consequently, hedge funds have never played a significant role in Tapiola Pension's investment allocation. The liquidity problems and non-transparent pricing of hedge funds have become particularly evident this year."

Tapiola Pension, part of the Tapiola Group of insurance and financial companies, said fixed income investments had produced the best returns in 2008, because of a combination of factors including reduction of interest rates, a low risk profile and an increased allocation in the fund's portfolio.

However, Hiidenpalo revealed a cautious view of market development going forward into 2009, as "on the equity market the greatest uncertainty factor is the results of the companies. In addition, the real estate investment return indicates challenges on the real estate market".

Despite its concerns for this year, Tapiola highlighted a strong solvency ration of 16.2% of technical provisions, and a solvency margin of 2.9 times the solvency limit, although it acknowledged changes to the solvency calculations in December means "the solvency figures of 2007 are not comparable".

Elsewhere, Veritas Pension Insurance also reported a solvency level of 2.6 times the minimum requirement, although its solvency ratio is 16.2% of technical provisions, almost half the 32.6% reported the previous year.

Despite the reduced capital adequacy levels and the poor investment return of -15.4%, the pension insurer confirmed customer bonuses will equate to around 0.2% of the wage bill, as it highlighted an increase in premium income of €16.3m in 2008.

Jan-Erik Stenman, managing director of Veritas, said the investment return was "as expected" given the situation of the markets in 2008, but emphasised the firm remains a long-term investor.

Veritas' full results will be issued next month, while the final figures from Tapiola Pension will be available on 16 February 2009.

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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