Tapiola Pension Interim Report 1 January 2008 - 30 June 2008
14 August 2008
Tapiola Pension’s premium income increased significantly during 1 January 2008 - 30 June 2008. It grew by 15.5 percent to EUR 719.9 million. The company’s overall result showed loss due to the difficult investment market conditions. The uncertain investment markets of early 2008 became evident especially in the return on Tapiola Pension’s equity investments.
During the first six months of 2008, the company’s premium income increased by 15.5 per cent to EUR 719.9 million (EUR 623.3 million). The premium income from private sector employees subject to the Employees Pensions Act (TyEL) grew by 17.3 percent to EUR 634.5 million (EUR 540.9 million) during the interim period. Premium income from entrepreneurs subject to the Self-Employed Persons Pensions Act (YEL) increased by 3.7 percent to EUR 85.4 million (EUR 82.4 million). According to Olli-Pekka Laine, Managing Director of Tapiola Pension, the increased premium income is partly a result of the adjustment contributions for 2007 TyEL contribution as well as the extremely well performed new business.
– This indicates a strong customer confidence in Tapiola Pension, Laine says.
The return on Tapiola Pension’s investment portfolio at current value was -3.7 percent (3.7 percent) during the interim period. The investment return at current value was EUR -455.0 (EUR 81.9 million) including the required return for technical provisions. This decreased the investment return by EUR 162.6 million. At the end of June, the market value of the company’s investments was EUR 7,756.5 million (EUR 7,868.3 million 2007-12).
Number of Equities Not Decreased during the First Half of 2008
According to Tapiola Pension Investment Director Hanna Hiidenpalo, different asset categories faced significant fluctuations during the first half of 2008. Uncertainty on the depth of finance market volatility became evident as lower equity prices and higher interest rates.
Equities make approximately one fourth of Tapiola Pension’s investment portfolio. At the end of June, the equity investments amounted to EUR 2,074.4 million (EUR 2,248.2 million 2007-12). The proportion of equities was not significantly modified during the first half of 2008. Already at the end of 2007, the allocation between different asset categories was modified by reducing the proportion of equities below the level of 30 percent of all investments. This action was taken in order to prepare for the unstable market development of 2008.
Thanks to the relatively low proportion of equity investments during a downward trend, the declining rates have a softer impact on the result of Tapiola Pension. The average five-year return on investment was 6.8 percent at the end of 2007.
Return on Equity Outperformed Benchmark Index
The return on the company’s equity investment was -12.7 percent (12.4 percent same period last year). Despite the negative return on equity, the return on Tapiola Pension’s equity investment during the first half of 2008 was good when taking the market conditions into account; a vast European benchmark index showed a return of -18.8 percent.
– Tapiola Pension’s equity investments are mainly targeted to the European markets. We are not massively engaged in the financial sector equities. This has stabilized the company’s portfolio, since the decreasing rates did not affect Tapiola Pension’s equity portfolio as severely, Hiidenpalo states.
As to the different asset classes, outstanding loans brought the best return amounting to 2.5 percent during the interim period. Also money-market investments, bonds emitted by companies and real estate investments showed a profit during the first half of 2008.
Tapiola Pension’s investment activities focus on perseverance, and the investment policy has not been changed. Hedge funds do not play a significant role in Tapiola Pension’s allocation.
In the spring of 2008, different actors on the investment market voted Tapiola Pension as the best treasurer in Finland. This becomes apparent in the renowned 2008 Thomson Reuters Extel Survey. According to the survey, Tapiola has a good reputation on the market. Tapiola Pension observes a vast group of various companies, and Tapiola Pension’s in-depth analysis methods have now been recognized.
Overall Result Showed Loss due to Difficult Investment Market
Tapiola Pension’s overall result is composed of underwriting business result, return on investment operations and total amount of loading profit. The overall result of Tapiola Pension was affected by the difficult investment market conditions, and it showed a loss of EUR 421.1 million (profit of EUR 57.7 million).
At the end of June, Tapiola Pension’s solvency margin was EUR 952.1 million (EUR 1,406.1 million 2007-12) that makes 13.9 percent (21.3 percent 2007-12) of technical provisions. Tapiola Pension’s solvency limit determined on the basis of the company's investment distribution was 10.0 percent (12.2 percent 2007-12) of the technical provisions. This means that the company’s solvency was 1.4 times (1.8 times 2007-12) the requirement. Tapiola Pension’s solvency has remained sufficient.
The operating expenses were EUR 4.0 million (EUR 3.9 million) lower than the premium expense loading and amounted to 86.5 percent (84.5 percent) of the premium expense loading.
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