Ilmarinen, Finland’s second-largest private sector earnings-related pension provider, is to merge with its smaller rival Etera in a move that could reshape competition in the country’s pensions market.
Post-merger, Ilmarinen and Varma will be neck-and-neck in the national ranking.
Varma is currently the largest private sector pension fund in the country, and the second-largest overall after public sector pension fund Keva, according to IPE’s Top 1000 pension funds ranking within Finland.
The boards of Ilmarinen, which had €38.3bn at the end of the first quarter, and Etera, which had €6.2bn, have approved the merger agreement, which complete in January.
Mikko Helander, chairman of Ilmarinen’s board of directors, said: “The synergies achieved through the merger will benefit the clients of both companies.”
On top of this, he said the deal would improve the cost-effectiveness of the entire earnings-related pension insurance system significantly, and the sector’s solvency would strengthen overall.
“The transaction will thus benefit both policyholders and the insured alike,” Helander said.
Implementing the merger would require approval from both companies’ general meetings and that of the relevant authorities, Ilmarinen said.
The company cited solvency, cost efficiency, and competitiveness as reasons for making the deal. Ilmarinen said the merger would help cut annual administration costs by at least €20m starting from 2020. Within investment operations, another €20m could be saved from direct and indirect annual costs.
In terms of customer numbers and premiums written, the merged company would become Finland’s largest private sector earnings-related pension insurer, Ilmarinen said. The new firm would manage the pension cover of more than 1.1m Finns, with 675,000 insured and 460,000 pensioners.
The merged company would have a 37% market share of premiums written, Ilmarinen said.
However, in terms of assets under management, it appears that the merger will bring Ilmarinen just short of its rival Varma. Ilmarinen said the pension assets of the new company would be more than €44bn, but at the end of March, Varma’s investments totalled €44.4bn.
Tero Kiviniemi, chairman of Etera’s board of directors, said services would be tailored to meet the needs of different client segments within the merged company.
Ilmarinen said the new company would maintain “a strong and diverse role” in the investment markets in Finland and globally, and would also be a major real estate investor and financing partner for growth companies in Finland.
The companies’ boards have agreed that Ilmarinen’s president and chief executive Timo Ritakallio will continue in his position after the merger, with Etera’s current managing director Stefan Björkman becoming Ritakallio’s deputy.
Sini Kivihuhta will continue in her current role of deputy chief executive at Ilmarinen, the company said.