The return on pension insurance company Veritas’ investments was 6.6 per cent in January–June and a record 6.9 per cent in the second quarter of the year. Solvency strengthened thanks to the strong investment result.
Veritas’ premiums written are estimated to grow by 1.7 per cent and the TyEL payroll of Veritas’ client companies by 4.0 per cent this year.
“Signs of an upturn in the Finnish economy are becoming increasingly evident in companies’ outlooks. Exports are performing well and investments have started to grow,” says Veritas CEO Elina Fogelholm.
Fogelholm believes that the growth will gradually feed through to the labour market. Strengthening consumer confidence is particularly important for employment.
“More than half of Finland’s gross domestic product comes from private consumption. We are now seeing signs of recovery there as well.”
According to Fogelholm, innovations and productivity growth are essential for Finland’s long-term growth.
At Veritas, artificial intelligence is being used to boost productivity.
“We have strengthened our AI-related risk management and piloted AI-based solutions in different areas. Our aim is to use AI to free up more time to serve our customers.”
According to a customer survey carried out in the spring, Veritas’ employer customers are increasingly satisfied with Veritas’ operations and services.
“Customers value having a dedicated contact person and receiving personal service, but they would like us to be more proactive in staying in touch. That is why we will invest in more systematic and proactive customer communication going forward,” Fogelholm says.
The return on Veritas’ investments was 6.6 per cent in the first half of the year
The return on Veritas’ investments was 6.6 (1.9) per cent in January–June. The return on fixed-income investments was 2.5 (0.9) per cent, equity investments 10.3 (3.2) per cent, real estate investments 0.9 (1.8) per cent and other investments 4.9 (0.3) per cent. The value of investments stood at EUR 5.5 (4.9) billion at the end of June.
In the second quarter of the year, the return on investments was 6.9 per cent.
“Veritas recorded its strongest quarterly return on record in the second quarter. In six months, Veritas’ investments have delivered more than they on average have returned in a full year,” says Chief Investment Officer Laura Wickström.
The strong investment result was driven by earnings growth in AI-related stocks, which surprised markets on the upside and fueled a strong rally in equities in the second quarter. By contrast, the market downturn triggered by tensions in the Middle East in the first quarter proved short-lived.
“Investors’ concerns about a sharp rise in the oil price and its impact on the global economy faded quickly.”
The timing of the increase in equity weight was spot on
The first phase of the pension reform, which entered into force in July, has brought changes to Veritas’ investment operations. As a result of the reform, the share of equities in the investment portfolio can be increased gradually.
“We have prepared for the reform and increased our equity weight during the first half of the year. At Veritas, the timing of the increase in equities was spot on, as equity markets have seen a historically strong rise,” Fogelholm says.
The investment reform has made direct investments in Finnish real estate much more attractive to pension insurance companies, as it allows them to make greater use of leverage. The change puts pension insurance companies on an equal footing with other real estate investors.
“The reform will certainly also have positive effects on the Finnish real estate market, even though increasing the equity weight will draw capital away from other investments in a pension insurance company’s portfolio.”
Exceptional valuation shift in the markets
Wickström expects economic growth to continue in Finland and Europe. There are currently no signs of a recession in the US economy either.
“Inflation appears to be under control and the market environment continues to support risky asset classes. Despite the rise in equity prices, valuations in equity markets appear reasonable, as earnings forecasts have also been revised upwards,” Wickström says.
Technology and artificial intelligence continue to be the main drivers of the market, but there has been an exceptional shift in valuations.
“Industrial stocks are now, on average, trading at higher valuation multiples than technology stocks, whereas historically the opposite has usually been the case.”
Fiscal deficits and the possible resulting rise in long-term interest rates could hurt equity markets, but the greatest uncertainty currently relates to energy.
“A possible new oil shock could quickly change the outlook for inflation and interest rates. Europe’s gas storage levels are lower than normal ahead of the winter. The reopening of the Strait of Hormuz remains uncertain and tensions continue.”
Appendices:
Further information:
- Elina Fogelholm, CEO, tel. +358 (0)10 550 1600, firstname.lastname@veritas.fi
- Laura Wickström, CIO, tel. +358 (0)44 209 7498, firstname.lastname@veritas.fi
The comparative figures in brackets refer to the corresponding period of the previous year.
