PRESS RELEASE ON 16 FEBRUARY 2009
Tapiola Group
- In 2008, Tapiola’s customers received a total of EUR 90.7 million (EUR 118.9 million) in benefits. In addition, the Pension Insurance Company paid EUR 12.7 million (EUR 19.6 million) in customer bonuses. Despite the considerably more difficult overall economic climate compared to that of the previous year, customer benefits were kept nearly on the same level as in 2007.
- The new benefit programme resulted in a notable increase in the number of private customers who concentrated their insurance and financial services to Tapiola in 2008.
- The growth in comprehensive service solutions has enhanced cross-sales, that is, the sales of different Tapiola Group companies’ products and services to existing customers. This resulted in continued growth in the companies’ business volumes during 2008. The insurance companies’ premiums written continued to grow and the number of customers increased.
- The number of both private and corporate customers increased in 2008. The number of private customers rose by 4,300 to a total of 1,011,500 and the number of corporate customers from 18,990 to 19,056 customers. The number of entrepreneurs increased by 2,400 to 59,000 customers, while that of major customers rose from 147 to 166 companies.
- The solvency of Tapiola Group’s companies remained high in 2008.
Development of companies
- Tapiola General’s solvency ratio (solvency capital in relation to premiums earned) was 189.2 per cent (227.8%). The company’s premium income increased by 3.2 per cent to EUR 648.9 million (EUR 628.7 million). Tapiola General recorded an operating loss of EUR 58.2 million (operating profit of EUR 144.7 million).
- Tapiola Life Group’s total premium income increased by 1.3 per cent (1.6%), despite the premium income in the sector decreasing by 6.8 per cent. The solvency ratio of Tapiola Life was 15.5 per cent (15.7%) and that of Tapiola Corporate Life 18.9 per cent (14.9%). Tapiola Life recorded an operating profit of EUR 7.7 million (EUR 90.3 million). Tapiola Corporate Life’s operating profit totalled EUR 1.4 million (EUR 27.6 million).
- The return on Tapiola Pension’s investment portfolio at current value was approximately –8.3 per cent in 2008 (+4.1% in 2007). Although the return was negative, Tapiola Pension’s return on investments in 2008 was by far the best in the industry. Tapiola Pension’s premium income increased by 10.1 per cent to EUR 1,403.0 million
- Tapiola Bank’s result was EUR 1.6 million (EUR –2.1 million in 2007). The result turned profitable earlier than expected. The number of bank customers increased to 159,000 in 2008 (115,000 customers). The bank’s credits and deposits also increased faster than predicted.
- Tapiola Asset Management Ltd raised the number of unit holders by 17 per cent and also boosted its market share in 2008.
- The turnover of Tapiola Real Estate rose to EUR 6.7 million (EUR 5.5 million). The company’s operating profit was EUR 0.5 million (EUR 0.1 million).
Review by the President
“Since the core of Tapiola's operations is providing benefits to owner-customers, the surplus of operations is used for the benefit of owner-customers through customer bonuses, premium reductions and service development,” says President Asmo Kalpala. Customers of Tapiola General and Tapiola Life insurance companies received a total of EUR 90.7 million (EUR 118.9 million) in benefits. Customer bonuses in the Pension Insurance Company totalled EUR 12.7 million (EUR 19.6 million).
Customers receive premium reductions, for example, through Tapiola’s new benefit programme for private customers. ”Despite the considerably more difficult overall economic climate, we kept the reductions and benefits to customers nearly on the same level as in previous years. In 2008 the benefits amounted to approximately EUR 75 million which is nearly on the same level as in 2007 (EUR 76 million)," says Kalpala.
In addition to the benefit programme’s permanent reductions, Tapiola annually grants customer bonuses depending on the company’s results. The highly challenging investment market affected the life assurance company’s customer bonuses, which decreased from some EUR 23 million to EUR 7 million. Despite the decrease, the customers’ average overall return on savings accrued was one of the highest in the market in 2008.
Solvency of companies
The companies’ investment activities were affected by the financial crisis in 2008. Since investments play an essential role in the performance of insurance companies, the uncertainties on the financial market weakened the companies’ results. However, the companies had made advance preparations for difficult market conditions by improving their solvency. “We had prepared for a decrease in the value of investment assets by considerably strengthening our balance sheets during good investment years. Last autumn we injected more equity into our life assurance companies and Tapiola Bank. The companies are now better prepared to carry out long-term, high-return investment activities – also during the financial crisis. We did this to guarantee as secure and favourable customer benefits as possible,” explains Kalpala. In the earnings-related pension’s scheme, the solvency of all TyEL companies was guaranteed by making fixed-term changes to solvency requirements.
Development work shows in operating costs
The increase in the insurance companies’ operating costs in 2008 reflects the development work carried out at Tapiola. Competitiveness has been improved with two development projects. A two-year project that further improved the services provided to Tapiola’s private customers was completed at the end of 2007. Among other things, the project resulted in a new benefit programme and an online claims service system. There is also a project currently going on at Tapiola focussing on the vigorous development of the competitiveness of the corporate business. “As we have previously explained, this will initially show as an increased expense ratio. After the exceptionally big investments made in recent years, our development costs will return to normal in the coming years," says Kalpala.
Changes in competitive position
As large banks have expanded into the insurance market in Finland, the competitive situation has changed considerably for Tapiola Group. Tapiola has successfully met the challenges created by large financial conglomerates by launching its own bank. “In my opinion, the subsidy packages offered to banks to alleviate the financial crisis are a risk to the neutrality of competition, since it is difficult to prevent subsidies from also finding their way to financial service companies owned by large banks,” says Kalpala.
Results
Tapiola General
According to Juha-Pekka Halmeenmäki, Managing Director of Tapiola General, the main impact of the financial crisis was the rapid drop in the value of investment assets, which considerably affected the company’s result in 2008. The return on capital employed at current value was –4.6 per cent (4.9%). Net investment income decreased by 88.7% to EUR 18.8 million (EUR 167 million). Tapiola General’s operating loss was EUR 52.8 million (operating profit of EUR 144.7 million).
The company’s solvency capital totalled EUR 1,174.5 million (EUR 1,368.55 million), and solvency ratio (solvency capital in relation to premiums earned) was 189.2 per cent (227.8%). “The solvency of Tapiola General has been strengthened for many years, and this work has now proved its necessity. The company’s solvency has remained at an outstanding level,” says Halmeenmäki.
Tapiola General Group’s comparable premium income increased by 3.2 per cent to EUR 648.9 million (EUR 628.7 million). Tapiola General’s direct business premium income increased by 3.3 per cent to EUR 606.1 million. The increase in Tapiola General’s premium income corresponded to the average in the sector. “Premium discounts affected our premium income. For example, the motor liability insurance premiums of private household customers were discounted by 6 per cent, in order to make the price level of Tapiola motor vehicle insurance very competitive,” says Halmeenmäki.
Within non-life insurance operations, the overall value of the benefits given to owner-customers amounted to EUR 81.0 million (EUR 83.0 million), including customer bonuses, loyalty discounts, service benefits and discounts based on co-operation agreements.
Tapiola General’s combined ratio excluding unwinding of discount expense was 109.5 percent (101.2%). The combined ratio is affected by Tapiola’s customer benefits. If the impact of benefits is eliminated, the combined ratio would total 101.0 per cent (93.3%). The ratio indicates the good efficiency of the mutual company for the customers.
Tapiola Life and Tapiola Corporate Life
“Insurance sales and premium income increased and the service development also saw good progress in 2008,” says Managing Director Minna Kohmo, describing last year’s events. The premium incomes of Tapiola Life and Tapiola Corporate Life developed well throughout the year, and the Group’s overall premium income grew by 1.3 per cent to EUR 205 million (EUR 202 million), even though premium income in the sector decreased by 6.8 per cent.
Although business was good, the Group’s performance was affected especially by the strong fluctuations in the financial markets. Tapiola Life’s net investment return at current value dropped to –1.1 per cent (4.0%). The corresponding figure for Tapiola Corporate Life was –12 per cent (3.5%). Tapiola Life recorded an operating profit of EUR 7.7 million (EUR 90.3 million). Tapiola Corporate Life’s operating profit totalled EUR 1.4 million (EUR 27.6 million).Technical provisions amounted to EUR 2.6 billion (EUR 2.6 billion).
Owing to the highly exceptional conditions on the investment market, customer benefits had to be reduced from the previous year. Nevertheless, customers got an average interest rate of 4.5 per cent on their investment savings (5.6%). “In 2008, the benefits received by Tapiola’s customers continued to be among the best in the market,” says Kohmo.
Depreciations of investments and the continued strong value fluctuations reduced the available solvency margins. To counteract this, the life assurance companies' equities were boosted with Tapiola Group’s internal additional equity investments totalling EUR 85 million. This placed Tapiola’s solvency at a secure level. The solvency ratio of Tapiola Life was 15.5 per cent (15.7%) and that of Tapiola Corporate Life 18.9 per cent (14.9%).
Tapiola Bank Ltd.
Tapiola Bank’s result from 1 January to 31 December 2008 was EUR 1.6 million (EUR –2.1 million in 2007). The result turned profitable sooner than expected. Tapiola Bank started operations in February 2004 and it was not expected to report a profit until 2009.
Other indications of the Bank’s rapid growth include the increase in customer numbers, as well as the faster than predicted development in credits and deposits. The number of bank customers increased to 159,000 in 2008 (115,000 customers). The growth in customer numbers also resulted in Tapiola Bank’s credits and deposits increasing faster than predicted. According to unaudited data, the credit portfolio rose to EUR 973 million (EUR 680 million) and the deposit base to EUR 1,190 million (EUR 840 million). In 2008, the bank’s interest margin was EUR 12 million (EUR 8.1 million).
The number of customers grew by 44,000 in 2008. In general, only about four per cent of Finns change banks annually, but last year the number was clearly higher. According to Harri Lauslahti, Managing Director of Tapiola Bank, there were several reasons for this. “I would describe last year as one of turmoil for Finnish banks. For example, the unsuccessful system revamp of one of the competitors made many Finns to look for a new bank.” In addition, the crash of Icelandic banks eroded confidence among depositors. “I am very pleased that Tapiola Bank managed to attract such a big share of bank switchers,” says Lauslahti.
The customer funds managed by the Tapiola Bank Group totalled EUR 6,069 million (EUR 6,405 million) at the end of the review period. At the end of the financial year, the Tapiola Bank Group’s solvency ratio according to the Act on Credit Institutions was 16.8 per cent (12.0%). The bank’s solvency ratio at the end of the review period was 18.7 per cent (17.3%).
Tapiola Asset Management Ltd
Tapiola Asset Management succeeded in many ways in its business, even though the financial crisis hit hard on the mutual fund sector. The company raised the number of unit holders by 17 per cent and also boosted its market share in 2008. The result was slightly negative. The market share in fund operations grew to 2.5 per cent (2.2%). The Managing Director of Tapiola Asset Management Ltd., Tom Liljeström, is satisfied with the company’s development. “In uncertain times, customers have increasingly turned to asset management professionals when planning their investment decisions. I am particularly pleased with our market share growth. We are now the seventh biggest fund management company in terms of market share and we aim at the top five in Finland within four years.”
In the mutual funds managed by Tapiola Asset Management, the fund capital decreased by approximately 28.5 per cent to EUR 1,026 million (EUR 1,436 million) during the review period. The drop was clearly smaller than that of the sector in general, which amounted to 37 per cent according to the Finnish Association of Mutual Funds.
Contrary to the general trend in the sector, the number of unit holders of Tapiola Asset Management rose by 17 per cent to 34,101 (29,109), whereas the sector in general experienced a decrease of 8 per cent.
The company’s operating result was EUR –0.24 million (EUR 0.46 million). It was affected by the system investments that the company continued to make in 2008. The new systems will be used to enhance the services for both asset management and fund customers, especially in the fields of online services and reporting. The assets managed by Tapiola Asset Management were EUR 4,880 million (EUR 5,630 million).
Tapiola Real Estate Ltd.
According to Vesa Immonen, Managing Director of Tapiola Real Estate, the company’s business has developed as planned.
Turnover rose to EUR 6.7 million (EUR 5.5 million) and operating profit was EUR 0.5 million (EUR 0.1 million), which represents 7.0 per cent (1.1%) of turnover. The company’s return on equity was 82.3 per cent (36.6%) and return on investment 43.2 per cent (19.7%). The company’s equity ratio at the end of the review period was 27.8 per cent (13.4%) and liquidity was at a good level.
Despite the tough market situation, the company carried out real estate investments of EUR 360.2 million (EUR 264.5 million) and real estate sales of EUR 266.0 million (EUR 173.1 million) for its customers in the review period.
The single biggest transaction was the real estate portfolio deal in which Tapiola Group’s insurance companies sold 30 real estate assets, worth EUR 216.0 million, to a fund managed by the Carlyle Group.
The market value of the real estate investments managed by the company rose to EUR 2,169.5 million (EUR 1,955.3 million). The leasable surface is approximately 1.0 million square metres (1.0 million sq.m.) and consists of office, commercial, logistics, industrial, hotel and residential facilities.
Tapiola Pension
Tapiola Pension did well in its investment activities in relation to its competitors. The return on investments at current value was approximately –8.3 per cent in 2008 (+4.1% in 2007). Investment income at current value showed a loss of EUR 631.4 million (EUR –50.1 million).
Although the return was negative, the result was good in view of the conditions, according to Satu Huber, Managing Director of Tapiola Pension. “Tapiola Pension’s return on investments in 2008 was by far the best in the industry,” she says. According to Huber, Tapiola will also do well in the long term, seeing as the company's average return on investments over five years is 3.6 per cent. An analysis that extends past the economic cycle and the previous market peak shows that the average return on investments is the best in the sector: 4.5 per cent since 2000.
Tapiola Pension successfully reduced the share of its equity investments. At the end of 2008, they accounted for some 15 per cent of total investments, while more than 70 per cent of the investment allocation had been invested in bonds. The difficult investing climate affected the company’s overall result. Tapiola Pension’s overall result was EUR –612.2 million (EUR –78.2 million).
Tapiola Pension’s premium income increased by 10.1 percent to EUR 1,403.0 million (EUR 1,273.7 million) in line with general income growth in the industry. The company’s market share is expected to have remained unchanged.
Tapiola Pension’s solvency ratio was approximately 16.2 per cent (21.3%) and the solvency margin was 2.9 times (1.8 times) the solvency limit. In December 2008, the legislation concerning pension insurance companies was amended and therefore the previous year’s solvency figures are not comparable.
Customer bonuses amounted to EUR 12.7 million (EUR 19.6 million), which represents 0.2 per cent (0.4%) of the payroll.