Elo, the third largest of Finland’s four pension insurance companies, said its solvency levels staged a big recovery in the second quarter following its one-day breach of the regulatory floor in March, but still reported weaker end-June solidity figures than its peers.
Satu Huber, chief executive officer of the mutual earnings-related pension provider, said: “The record-steep decline in the listed securities market in March had been followed by a fast rise, driven by exceptionally intensive stimulus measures.
“After the temporary drop caused by the coronavirus shock, Elo’s solvency strengthened significantly due to the general market rise,” she said.
In the second quarter, Elo submitted a recovery plan to the Finnish Financial Supervisory Authority (FIN-FSA), drawn up after its solvency position fell one point (0.01) below the supervisory threshold of 1.0 for one day, the firm said in its interim results announcement.
FIN-FSA approved Elo’s recovery plan on 16 June, the company said.
At the end of June, the solvency position was 1.4, down from 1.6 at the end of 2019.
Back in May, Finland’s government prepared emergency legislation designed to temporarily strengthen pension providers’ solvency, amid fears that the coronavirus pandemic and its dramatic effect on financial markets could otherwise force the institutions to sell assets in unfavourable conditions.
However, that legislation has not been submitted to parliament, as solvency levels have since bounced back.
Elo reported a negative return on investments for the first half of 2020 of 4.1%, compared with a positive result of 13% for the whole of last year. Its average real return over a 10-year period stood at 3.9% and at 3.3% over a five-year period, the firm reported.
Total assets dipped to €24.6bn from €25.9bn at the end of last year, according to the report.
Hanna Hiidenpalo, Elo’s CIO, predicted uncertainty on financial markets would continue for the rest of this year.
“A new concern is the second wave of the coronavirus pandemic, which would, at worst, stifle demand both in Finland and in the key export markets,” she added.
Hiidenpalo said economic development and the development of the investment market had taken divergent paths for a long time.
“What is crucial for the long-term development of the investment market is how long this divergence continues,” she continued.
The lack of profitable investment alternatives seemed to be supporting development of the equity market in conditions where low interest rates prevailed, she said.