2017 was a milestone year for Ilmarinen. The Boards of Ilmarinen and Etera signed a merger agreement in June, and after the decisions of the General Meetings and permission from the Financial Supervisory Authority, we were able to start up our operations as Finland’s largest private sector earnings-related pension provider at the start of 2018. From now on, we will be responsible for the pension cover of more than 1.1 million Finns.
Being large is not an end in itself, however. The purpose of the merger is to offer our customers even more diverse services and the best client benefits. We will make this a success by combining the strengths and competence of both companies and by utilising the improved cost-effectiveness resulting from the merger. Together, we wish to mould Ilmarinen into an agile and innovative service company that will spur on the entire earnings-related pension sector.
We modified our strategy in connection with the merger. Our goal is to be the most attractive earnings-related pension partner, built on the best customer experience, efficient operations and strong solvency. In order to achieve these goals, the next few years will be focussed on offering the best client benefits, serving digitally, investing productively and succeeding in the merger.
We offer the best client benefits
We are a mutual company owned by our customers – we exist for them. At the end of 2017, 38,800 companies had insured their employees with Ilmarinen. The total number of insured was 566,900. Employees’ share of this was 503,800 and self-employed persons’ 63,100. Premiums written stood at EUR 4.3 billion. After the merger the number of insured rose to 690,000.
At the end of the year, Ilmarinen paid out pensions to 337,000 people in a total amount of EUR 4.7 billion. From the start of 2018, we will pay pension to 470,000 people.
Together we are responsible for the earnings-related pension cover of more than 1.1 million Finns.
Our cost-effectiveness was at a good level as in previous years and operating expenses, less costs arising from merger preparations, fell from the previous year. The expense loading component was 81.1 per cent.
Thanks to good solvency and cost-efficiency, bonuses paid to client companies rose to a record-high level at EUR 120 million, which is 0.7 per cent of our client companies’ payroll.
The synergies gained through the merger will result in improved cost-effectiveness and, in turn, even better client bonuses for upcoming years. Our objective is to annually save at least EUR 20 million in total expense loading and EUR 20 million in investment operation costs, beginning in 2020. All of the savings in expense loading will be transferred to customers.
Offering digital services
In line with our strategy, we developed new digital services to support the well-being at work and work capacity management of our customers. We restructured our Better Working Life services into three areas: Luotaamo offers the Parempi vire application and insight into the work community’s state of well-being through pulse surveys, Valmentamo supports work capacity management, and through Ohjaamo (Virtual Control Room), customer companies can forecast and manage disability risks. Through these areas, we wish to improve the quality of working life, increase companies’ productivity and prevent disability together with customers. We also involved our customers in service development through the Wauhdittamo innovation programme.
We organised 44 Better Working Life coaching sessions for our client companies throughout Finland, attracting close to 3,000 people. During the year, almost 2,400 projects supporting well-being at work were underway and these covered 135,000 people.
We also support the management of disability risks and longer careers in our client companies through vocational rehabilitation. More than 7,000 decisions related to rehabilitation benefits were made in 2017, which was a 10.7 per cent increase on the previous year. The objective of the well-being at work services and rehabilitation is to reduce the costs arising from disability.
In honour of Finland’s centennial, we organised a campaign called ‘A hundred deeds for a better working life’. Through the campaign, we challenged companies to come up with and do good deeds that increase the well-being and activeness of their personnel, improve work capacity and create positive energy. The deeds were collected on the campaign website, which also functioned as an open portal for improving working life, available to all.
As the sector’s largest player, we wish to take on an even stronger role in supporting work capacity, productivity and success in Finnish companies. In 2018, we promise to build a better working life together with our customers. The merged company offers even better opportunities and even more diverse services to further this end.
We also offer digital services to our pension customers. In recent years, we have invested in the automation of pension processing and in developing electronic services. Fifty-seven per cent of old-age pensions were applied for online and we were able to process applications in four minutes, at our fastest. We issued altogether 28,600 new pension decisions during the year. This was 11 per cent more than a year earlier. This growth is the result of a new pension type that came out of the pension reform, the partial early old-age pension, for which we made around 3,000 decisions.
We invest profitably
The global economic situation developed favourably during the year. Economic development was supported by the stimulating monetary policies of the main central banks, which kept the interest rate level at an uncommonly low level. Also companies managed to improve their earnings and stock prices continued to rise in all the main market areas.
For Ilmarinen’s investment operations, the year was excellent. Our return on investments equalled 7.2 per cent, or EUR 2.7 billion.
Of the main asset classes, equity investments generated the best return at 14.8 per cent. Return on non-listed equities rose to as much as 26.8 per cent. Fixed income investments returned 1.6 per cent and real estate investments 5.0 per cent. In real estate investments, we continued to diversify onto the international real estate markets, in accordance with our strategy.
Ilmarinen’s long-term real annual return on investments since 1997 has been on average 4.3 per cent. This clearly exceeds the current 3.0 per cent return assumption used by the Finnish Centre for Pensions in its long-term calculations.
Thanks to a good investment year, our solvency continued to strengthen. At the end of 2017, Ilmarinen’s solvency capital was EUR 9.4 billion and the solvency ratio was 131.2 per cent.
The investment assets of the merged Ilmarinen came to EUR 45.8 billion at the start of 2018.
Our long-term efforts to further responsible investments and, in particular, take climate impacts into account received international recognition. We were placed in the highest AAA rating in the global climate organisation AODP’s index, which compares the carbon risk management of the world’s largest investors. The environmental organisation WWF also ranked Ilmarinen and other Finnish pension companies at the top in Europe in terms of how well their investments are aligned with the goals of the Paris climate agreement. In our real estate investments, we broadened the environmental classification of our properties by including old properties.
We will succeed in the merger – with positive energy
For Ilmarinen’s personnel, 2017 and the merger brought with them a lot of new things, but also uncertainty concerning the future. The autumn was busy with preparations for the merger, in which work both current and future Ilmarinen employees went above and beyond. Towards the end of the year, we started up co-operation negotiations concerning the personnel impacts of the merger, which continued into January 2018. The negotiation process took place openly and responsibly, in line with our values.
Our third value, success through teamwork, was present throughout the year as we thought about how to streamline our operating culture. This became more concrete through the merger when we were joined by our new colleagues.
We wish to be a responsible employer and show through our own operations that work can be a source of energy. An energising work community supports productivity and innovation and ultimately results in a better customer experience. We will continue to gain energy from working together and learn smart ways of working from one another. This is how we will achieve a successful merger and capitalise on the benefits of integration.
We support our employees’ well-being and good energy in a number of ways. Our remodelled office space is ergonomic and practical. We focus on healthy nutrition and our activation coach activates and helps individual employees find a way of being active that suits them. The work has paid off: absences due to illness among personnel have declined by 14 per cent from the previous year.
We came second in the Responsible Summer Job competition and received praise particularly for a good application process. We organised recruitment coaching for people who had applied for a summer job, through which we wanted to acknowledge the applicants who were not selected this time round. Lengthening careers, also at their beginning, fits in perfectly with the role of earnings-related pension companies.
* * *
One era in Ilmarinen’s history will come to a close at the end of February when I give up my position as President & CEO and take over the reins at OP Financial Group. I wish to extend a heartfelt thank you to Ilmarinen’s customers, personnel, management and other partners for the past years and I wish Jouko Pölönen, the new President & CEO, all the success in the world. Our co-operation will undoubtedly continue also in our new roles – succeeding together in the future!
Timo Ritakallio, President and CEO (until 28 February 2018)