FINLAND - Etera Mutual Insurance Company has reported its assets fell in value by €380m in the third quarter of 2008, while its overall negative investment return for the first nine months of 2008 has hit -9.9%.
Figures from the pension company showed the value of its investment portfolio fell from €5.68bn at the end of June to €5.3bn at the end of September, as it admitted the global financial crisis had impacted its investments.
The overall negative return of -9.9% between January and September 2008 was driven primarily by the poor yield on its quoted equity investments of -28.1%, although its 44% allocation to bonds also produced a negative return of -0.8%.
Etera revealed the best results were produced by unquoted equities and private equity, which together yielded 4%, while real estate investments and "investment loans" returned 2.2% and 3.8% respectively.
The pension insurance company's 4% allocation to hedge funds also resulted in a loss of -7.6% over the nine months, as it claimed the bankruptcy of Lehman Brothers had "weakened the conditions for hedge fund investors dramatically", though Mika Pesonen, chief investment officer at Etera, stressed "Etera had no direct investments in Lehman Brothers and there will be no significant losses even through fund investments".
Following the financial turbulence, Pesonen confirmed the fund had "reduced the proportion of equities in the portfolio and increased the proportion of fixed income investments" in the portfolio.
Quoted equities accounted for 26% of Etera's investments at the end of September, which, it claimed, is "considerably less than normal" while fixed income investments rose to 49% and real estate increased to 17%.
Despite the market volatility, Kalevi Hemilä, managing director of Etera, said the company's solvency "has remained solid, considering the exceptional circumstances", with a ratio of 15.4% of technical provisions and a position 1.4 times the legal requirements.
The solvency position indicates the amount of solvency margin in relation to the risk involved in the investment portfolio, whereas the solvency ratio describes the amount of solvency margin as a percentage of the pension liabilities to be covered.
However, the figures revealed although the position is described as "solid", it has deteriorated significantly from the 21.3% of technical provisions and 1.7 times the minimum requirement, reported by Etera for the end of June. (See earlier IPE article: Finnish state fund drops 6.4%)
That said, Etera noted the temporary solvency legislation means it will no longer be necessary for earnings-related pension insurers to sell their equity investments in order to comply with investment activities and solvency requirements, so this should improve the solvency position of the firm.
Hemilä said: "Etera's solvency has always fulfilled the requirements set by the authorities, but the amendment will still strengthen our solvency considerably."
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