Varma’s solvency strengthened in the second quarter of 2020 and investment returns increased by EUR 2.1 billion since the collapse of share prices in the first quarter. Varma’s investment portfolio amounted to EUR 45.3 billion at the end of June.
“The equity and corporate bond markets recovered considerably in the second quarter of the year. Although the real economy plummeted worldwide, the investment markets benefited from the historically massive stimulus measures rolled out by central banks and governments,” says Varma’s President and CEO, Risto Murto.
The return on investments in January–June was -5.7% (6.9%), whereas at the end of March, it was -10.0%. The positive development of investment returns in the second quarter boosted the value of Varma’s investments by EUR 2.1 billion euros compared to the situation at the end of March. Varma’s investment portfolio amounted to EUR 45.3 (46.5) billion at the end of June.
Varma’s solvency capital strengthened by EUR 0.9 billion after the end of March as investments recovered from the coronavirus crisis of the spring. Solvency capital grew to EUR 8.8 (11.6 on 1 Jan) billion and was thus 1.7 times the solvency limit (1.8 times on 1 Jan). Varma’s solvency capital, which serves as a risk buffer for investment operations, is still at a strong level. It provides protection against volatility in investment market returns and enables Varma to aim for higher returns by making riskier investments with a better return potential.
Real estate investments generated the strongest return
In the second quarter of the year, Varma’s investment returns recovered from the fall in share prices seen early in the year, but the gains were more moderate than the general development of the equity markets. The recovery of the equity markets was led by technology companies.
“Hedge fund investments were weighed down in particular by the slow recovery of fixed income investments linked to the U.S. mortgage market,” says Varma’s CIO, Reima Rytsölä.
In January–June, real estate investments had the strongest performance of Varma’s investments, yielding a return of 1.6% (1.9%). In the second quarter, the return on equity investments improved from the situation at the end of March, but was nevertheless negative at the end of June, at -8.4% (12.5%). The return on fixed income investments was -1.3% (3.5%) and on hedge fund investments -7.9% (3.1%).
The average 10-year nominal return on investments was 4.9%.
“As a consequence of the central banks’ and governments’ stimulus, the investment market and the real economy have been heading in different directions, which cannot continue indefinitely. Either the handbrake that’s gripping the real economy due to the coronavirus must be released or the investment markets must make a downward correction of valuation levels,” says Rytsölä.
“The pandemic will inevitably have long-term economic impacts. Public-sector economies are in greater debt, and at the same time, the interest rate level will be very low for a long time. In terms of the pension system, the development of economic growth and employment in Finland in the long run are important,” stresses Murto.
Small businesses and entrepreneurs made use of flexible payment terms for only a brief period
The pandemic had impacts on Varma’s client companies and its tenants’ business operations. In March–June, Varma gave a total of 7,000 TyEL and YEL customers additional time to take care of their insurance contributions due to the coronavirus situation. More than 10% of Varma’s TyEL customers and 14% of YEL customers made use of the payment term flexibility during the review period. Companies reduced their use of flexible payment terms in the course of the spring. Of the large employers who took advantage of the payment term flexibility, 60% postponed their payments falling due in all three months, April–June. Of the small companies and entrepreneurs that made use of the payment term flexibility, some 70% postponed payments for only 1 or 2 months. Large employers also opted for longer additional payment terms than small companies and entrepreneurs.
Varma gave its cafe and restaurant tenants a two-month relief period in their rental payments for May and June due to the coronavirus. For other tenants, payment period arrangements for rents were negotiated on a case-by-case basis.
Employer contributions were temporarily reduced from the start of May until the end of 2020. The impact of the reduction will be compensated entirely by increasing the share of earnings-related pension contributions paid by employers in 2022–2025.
In spring, Varma joined an international group of investors calling on pharmaceutical companies to develop a coronavirus vaccine and work together in the fight against COVID-19. The initiative stresses fair and equitable access to medications and vaccines.
Coronavirus increased the number of online pension applications
Varma succeeded well in acquiring new customers in the first half of the year and gained a total of EUR 56 (65) million in new premiums written during the period. This includes the net impact of new sales of TyEL and YEL policies and insurance policies transferred from other pension companies.
Of the pension applications Varma received, 58% were sent electronically via Varma’s eServices. The share of online applications grew by 8% in the first half of the year compared to the situation at the end of last year due to the COVID-19 situation. New pension decisions made at Varma by the end of June totalled 11,534 (11,061), which is roughly 4% more than in the corresponding period last year. The number of disability pension applications remained at the same level as last year, and the number of rehabilitation applications decreased by approx. 9% from last year.
At the end of June, Varma provided insurance for 538,000 (542,000 on 1 Jan) employees and self-employed persons and for 344,000 (344,000 on 1 Jan) pension recipients.
Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 900,000 people in the private sector. Premiums written totalled EUR 5.3 billion in 2019 and pension payments stood at EUR 5.9 billion. Varma’s investment portfolio amounted to EUR 45.3 billion at the end of June 2020.
Further information:
Katri Viippola, Senior Vice President, HR, Communications and Corporate Responsibility, tel. +358 400 129 500 or katri.viippola(at)varma.fi
Suvi Vesterinen, Communications Manager, tel. +358 40 555 8029
or suvi.p.vesterinen(at)varma.fi
Attachments:
Half-year report presentation (pdf)
Half-year report 1 January‒30 June 2020 (pdf)