Solvency levels in Finland’s employee pension sector worsened slightly over the first three months of this year, and providers are facing downside risks relating to valuations of their illiquid assets such as real estate and private risks, according to Finland’s Financial Supervisory Authority (Finanssivalvonta, FIN-FSA).

But in its first quarter report on the capital position of the Finnish financial sector, the watchdog also assessed that the pensions sector still had the capacity to bear shrinking values in those asset classes, and was even resilient to “significant write-downs”.

Commenting on Finnish financial firms overall, the supervisory agency said in today’s report that the sector’s capital position had remained good in the early months of 2023, despite the continued high level of risks in the operating environment.

“The economic outlook is overshadowed by weak consumer and business confidence, higher prices and the rapid rise in interest rates to a significantly higher level than in previous years,” said FIN-FSA.

On the other hand, it said, the economy had been more resilient than expected and some segments of the equity markets had developed positively compared with the turn of the year.

In the employee pension sector alone, the FSA reported that the average solvency ratio had declined slightly in the first quarter to 126.8% at the end of March from 127.0% at the close of 2022.

At 1.6% on average, the return on investment had been slightly lower in the three months than the required rate of return of 1.8%, the authority said.

In the early months of this year, it said, the return on liquid investments, i.e. equity and fixed-income investments, had been positive at 3.0%, but in contrast, the return on illiquid investments – real estate, private equity and other assets – had been close to zero.

“Downside risks to the valuation of illiquid investments may, if materialised, weaken the sector’s solvency,” FIN-FSA said.

“The employee pension sector’s capacity to bear risks related to negative value changes of investment assets is still stable and also resilient to significant write-downs of illiquid investments,” it said.

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Rachel is IPE's Nordic correspondent. She has long been a freelance writer, and over the years, has written for The Telegraph, The Independent, The Observer, AMWatch and elsewhere. In 2001, Rachel's personal finance book Kickstart Your Money was published by John Wiley & Sons.View full Profile

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