FINLAND - The €23.4bn Ilmarinen Mutual Insurance Pension Company has reported a negative return of -9.4% for the first nine months of 2008 and a loss of €2.3bn in the third quarter, but its solvency ratio could improve under Finnish government proposals to relax regulations.

It appears Ilmarinen was not alone in suffering significantly losses within the last three months as the Finnish government is now discussing a Bill to temporarily reform the solvency regulations for employment pension companies to make them more "flexible".

In a statement, the Finnish government said as the market value of Finnish shares owned by pension companies have fallen sharply, the solvency rates of the firms have also come down fairly quickly, so the proposals are designed to avoid pension companies having to divest from stocks in a way that would disadvantage Finnish stock prices.

The Bill, which is designed to strengthen private sector employee pension insurers' solvency, is expected to come into force as soon as possible and the law could remain in place until the end of 2010.

As a result of the recent market volatility and the poor returns, Ilmarinen saw the value of its investments fall from €25.7bn at the end of June 2008, to €23.4bn at the end of September, a drop of €2.3bn in just three months. (See earlier IPE article: Ilmarinen loses €1.7bn in H1)

Ilmarinen has revealed its solvency capital reduced from 22.3% of technical provisions at the end of June to 15.5% at the end of September, while its solvency ratio had dropped to 1.3 times the minimum requirement, compared with 1.9 times held three months earlier.

Within these broad asset classes listed equities was the worst performing asset class with a negative return of -25.8%, while hedge funds and private equity lost 4.9% and 4.4% respectively.

Figures from Ilmarinen showed the best performing investment sector was private equity, which delivered a return of 16.3%, while direct real estate investments yielded 4% for the pension scheme.

Figures from the pension fund showed the main driver of the poor return at the end of September 2008 was its equity investments, which have fallen 23.7% over the year so far, although fixed income investments returned 0.4% and property yielded 3.6% while other investments achieved 3.8%.

Despite the poor returns, Timo Ritakallio, deputy chief executive and president of investments at Ilmarinen, claimed "equity investments still remain the most profitable way of investing employment pension funds".

He added: "We are able to handle the pressure at a satisfactory level, particularly when taking into account the difficult market situation. We believe that long-term investing will carry us through economic fluctuations."

However, Jaakko Tuomikoski, deputy chief executive and president of finance and risk control at Ilmarinen, said even though the financial market crisis "worsened to unprecedented dimensions" in October, the solvency capital of the pension fund has remained above the solvency margin.

Tuomikoski said: "However, more flexible solvency regulations are suitable in this situation. Although the crisis will deepen further, the regulations mean that employment pension companies do not have to change the structure  of their investments in a way that could endanger future returns or decrease the share prices of Finnish listed companies."

Moreover, Tuomikoski claimed the new regulations would increase Ilmarinen's solvency capital to more than twice the minimum requirement.

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