Finnish pension insurance companies have planned to join forces

In spite of failed negotiations, fusion plans continue among smaller players in pension insurance market

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Some of the smaller Finnish insurance companies responsible for providing statutory employment pension insurance policies have planned to join forces in order to create a new larger pension company to compete with the currently largest players, Varma and Ilmarinen.
     
In all discussions, one party to the negotiations has been Etera Mutual Pension Insurance Company, an expert in the earnings-related pension markets.
      According to the information gathered by Helsingin Sanomat, the Board of Etera has first negotiated a potential merger with Eläke-Tapiola and then with Eläke-Fennia, which are the next largest insurance companies after Varma and Ilmarinen.
     
Talks with both Eläke-Fennia and Eläke-Tapiola have been concluded without result - at least for the time being.
      Nevertheless, Helsingin Sanomat has been informed that both Eläke-Tapiola and Eläke-Fennia are still fostering a desire to merge with another small insurance company.
     
The aim of the negotiations was to build a medium-size employment pension company, which could compete with the two largest pension insurance companies Varma and Ilmarinen. These two firms currently account for around 70% of the market between them.
      The considerably smaller companies - even when put together, Eläke-Tapiola and Eläke-Fennia are only half the size of Varma by assets - have found it hard to use cost-effectiveness as a tool in competition.
     
Etera’s zeal for a merger has been increased by the fact that the company’s market share has declined significantly. In 2009, its share of the employment pension insurance market was about 5.4%, while three years ago its market share was around 8 per cent.
      Another factor that has weakened Etera’s profit has been its failed investment operations.
      Over the period from 2005 to 2009, Etera’s average return on investments has been only 2.9 %. In other words, the company has not managed to obtain the 3% return that it is supposed to transfer into the retirement pension funds every year.
      Moreover, Etera’s return on investments for the current year was only 2.6 %, which was lower than that of other Finnish pension insurance companies.
     
Negotiations on setting up a new insurance company to provide statutory employment pension insurances are rare in Finland - let alone fusions of such companies.
     
The previous restructuring in the sector was seen in 1998, when a large part of the then pension insurance company Eläke-Varma was merged with Eläke-Sampo. This fusion resulted in Varma, which is today Finland’s largest insurance company.
      At the same time, a new pension insurance company Eläke-Fennia was established in Finland. The new company became a mutual employment pension company for small and medium-size enterprises in particular.


Links:
  Etera Mutual Pension Insurance Company
  Eläke-Tapiola
  Eläke-Fennia
  Varma
  Ilmarinen

Helsingin Sanomat