Finnish pension solvency still strong, but FSA cautions on illiquid values

Pensions institutions in Finland still have strong solvency levels despite a weakening in the first half of this year, the country’s financial watchdog said this morning, but noted values of illiquid investments – which now make up nearly half of assets – take longer to update.

The Finnish FSA (FIN-FSA, Finanssivalvonta) gave an assessment on the soundness of its supervised entities, and the risks it was focusing on, at a press conference today, and outlined this in a press release.

Tero Kurenmaa, FIN-FSA’s director general, said: “In the deteriorating operating environment, it is important that the financial sector is stable and risk management is sound.”

He went on to describe the financial sector’s current situation as good, saying that was a strength as the economic situation weakened.

Regarding the employee pension sector, the Helsinki-based authority said “solvency remained strong, despite solvency decreasing, as the return on investment was negative and clearly lower than the return requirement”.

At the end of June, the solvency ratio for providers in the earnings-related pension system was 130.3%, down from 136.3% at the end of 2021, with the ratio of solvency capital to the minimum solvency requirement  having weakened to 1.7 from 1.9, FIN-FSA reported.

“Employee pension institutions’ average stress resilience is still strong, despite the weakening of solvency,” the watchdog said.

Overall, earnings-related pension institutions’ returns on investment in the first half of the year were -5.2%, it said, as liquid investments – listed shares, bonds and money market investments –  were markedly negative.

“The return on illiquid investments (loans, real estate, private equity and hedge fund investments) was clearly positive in the first half of the year, but the valuation of these investments is subject to higher uncertainty and the values are updated with a lag,” said FIN-FSA.

It also commented: “In the employee pension sector, a growth in private equity investments has increased the share of illiquid investments, which accounted for 44% of total investments at the end of June.”

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