Advance Information on the Tapiola Pension Financial Statements for 1 January to 31 December 2011
30 January 2012
• Tapiola Pension’s return on investment at current value was -3.1 per cent for 1 January to 31 December 2011 (10.8%).
• The solvency ratio was 22.3 per cent at the end of the year, and the solvency position was 3.6 (29.6%, 3.0).
‘Tapiola Pension’s solvency position withstood well the weak market trend in investment year 2011. The investment income improved significantly from its situation at the end of September. The increase amounted to about two per cent. With the exception of listed equity investments, all asset classes – approximately four fifths of the investments – showed a positive return last year. A particularly good return was achieved by private equity investments (nearly 14%), while the return on non-listed equity investments exceeded 18 per cent and that on real estate investments was 6 per cent. Hedge funds also performed well and reached the targets set,’ says Hanna Hiidenpalo, Investment Director at Tapiola Pension.
There was a clear change in Tapiola Pension’s view of the market outlook in the early part of last year; during the summer, a significant shift in allocation from equity to fixed income investments was implemented. Equity and company risk were significantly reduced throughout the investment portfolio. At the same time, the proportion of alternative investments was increased, to diversify risk. At the start of the year, Tapiola Pension had an excellent liquidity position.
2011 was exceptional in fixed income
The government bond crisis in the euro area and the unusual means of monetary policy set the tone for the fixed income in 2011. Tapiola Pension's fixed income investments achieved a good return. This return, which outperformed the benchmark index, was due to successful allocation decisions, as well as investing only in government bonds of the most solvent euro countries. At a very early stage, Tapiola Pension excluded investments in the European peripheral states. Other investment assets too were carefully analysed with regard to this region.
The steep decline in equity markets at the end of the summer resulted in a negative return for equity investments at Tapiola Pension. The decline was particularly sharp in markets in Finland and the other Nordic countries, which Tapiola Pension has traditionally weighted in its investments. The negative full-year return of the equity markets was softened by the rise in share prices during the last quarter. Tapiola Pension's listed equity investments returned 15.7 per cent.
High solvency position enables competitive bonuses
Tapiola Pension’s solvency margin was 22.3 per cent of technical provisions (29.6%) and 3.6 (3.0) times the solvency limit. Without the temporary changes in legislation, the solvency ratio would have been 17.4 per cent (24.4%) and the solvency position 2.8 (2.4).
The high solvency margin level, in turn, enables competitive bonuses. The bonuses amount to an estimated EUR 21.2 million (EUR 25.3 million), which represents 0.36 per cent (0.44%) of the payroll.
Exceptionally high level of uncertainty continues
In investment markets, the pricing of risk-bearing asset classes is already reflecting a short period of recession within European borders. Because of the problems in the real economy and the financial system, the central banks are likely to keep their key interest rates very low for a long time.
For equity markets, this involves a risk that the problems of the European economy will spread widely through the financial markets, also to the US and emerging economies. Of particular concern is the possible bursting of the Chinese real estate bubble, which would be reflected strongly in raw material prices and thus also in the currencies of the countries producing raw materials.
Responsible investing has yielded top returns among pension companies for a decade
In the annual survey of signatories to the UN Principles for Responsible Investment carried out in September 2011, Tapiola Pension’s investment operations achieved excellent results. The company’s investments ranked among the best in nearly all areas. Almost 200 investors participated in the survey. Tapiola Pension has integrated the United Nations’ Principles for Responsible Investment into its investment processes: the company is in the top 10 in the Nordic region and among the best 12 pension investors globally in the view of the investors taking part in the survey.
Over the past decade, implementation of the Principles for Responsible Management has generated top returns for Tapiola among Finnish pension insurance companies. The 10-year average returns remain at a solid level, 5.1 per cent.
‘Once again, our systematic investment process received international recognition last year. Investment and Pensions Europe, an organisation evaluating the European pension fund investment market, chose Tapiola Pension as Finland’s best pension fund investor for the second year running,’ says Tapiola Pension’s Managing Director, Satu Huber. In the IPE European Pension Fund Awards, Tapiola Pension was the only Finnish company to be recognised. Previously, Tapiola Pension was rated as the best in-house investment organisation in Europe in the same competition.
The financial figures in this press release are preliminary. Audited financial results will be published week 12 in 2012. The preliminary financial statements information regarding the rest of the companies included in the Tapiola Group is published in a press release on 15 February 2011.
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