“So far, it has been a good year for the pension system. The trend in both investment returns and employment has been a positive surprise, but the fastest acceleration in the economy is probably already behind us,” says Varma’s President and CEO Risto Murto.
“The positive development in the Finnish economy and the situation of companies was reflected at Varma, for instance, as fewer payment difficulties among customers and growth in the TyEL payroll,” Murto adds.
The return on Varma’s investments was 13.5 (-2.6) per cent, i.e. EUR 6.7 (-1.3) billion, in January–September 2021. The value of the investments grew to EUR 56.6 (46.8) billion at the end of September. The highest returns came from private equity investments, at 39.9 (-0.7) per cent, listed equities, at 17.6 (-4.3) per cent and hedge funds, at 11.6 (-5.4) per cent. The total return on equity investments was 23.1 (-3.2) per cent, and on real estate investments 4.1 (1.2) per cent.
“Although the rally in the listed equity markets levelled out, our investments continued to perform strongly in the third quarter. All asset classes yielded consistent returns, and private equity investments performed exceptionally well,” says Varma’s CIO Reima Rytsölä.
According to him, there are currently two divergent forces driving the investment markets:
“The lifting of coronavirus restrictions globally supports economic growth. On the other hand, production bottlenecks and rising energy prices are slowing down growth worldwide. Inflation is rising, and the markets are monitoring whether this is a temporary phenomenon and how the central banks will adjust their monetary policy in an environment of rising prices.”
Thanks to good investment returns, Varma’s solvency capital reached a new record high of EUR 15.7 (11.5 on 1 Jan) billion and was 1.9 times (1.7 on 1 Jan) the solvency limit.
Maintaining growth will require investments
The positive development in the Finnish economy and the situation of companies was reflected at Varma, for instance, as fewer payment difficulties among customers and growth in the TyEL payroll. As employment figures returned to the pre-pandemic level and restrictions eased, the total TyEL payroll of Varma’s client companies grew nearly 7 per cent in July–September compared to the pre-pandemic third quarter of 2019. The payroll of the travel and restaurant industry, which suffered the most from the pandemic, grew since the end of June, but nevertheless fell short of the third-quarter 2019 figure.
According to Murto, Finland’s economic outlook is positive in the short term, but sustained growth in the longer term will require investments and labour force.
“Investments should start up now at the latest in order to ensure that economic growth is on a more solid foundation. Increasing labour immigration is essential to ensure sufficient labour force and growth,” stresses Murto.
Varma gained a total of EUR 41 (136) million in new premiums written during January–September. This includes the net impact of new sales and premiums written transferred from other pension institutions.
Mental health disorders still the most common reason for disability
The number of disability pension applications received by Varma was down five per cent in January–September 2020 compared to the same period last year. Mental health disorders remained the main reason for new applications for disability pension.
By the end of September, Varma had processed 13 disability pension applications in which Covid-19 was cited as the main reason for disability. Of these, two people were granted disability pension until further notice, and six were granted the cash rehabilitation benefit for a fixed term.
Varma has promoted sustainability in its hedge fund investments
Varma has promoted sustainability in hedge funds. Thanks to Varma’s engagement efforts, approximately 95 per cent of Varma’s hedge fund investments have responsible investment policies in place, and a climate risk assessment is being conducted on them. In addition, in 2021 Varma made significant new fund commitments in renewable energy and in funds focussing on the energy transition.
Varma is participating in the CDP campaign that encourages companies to set science-based targets for emissions reduction, i.e. to operate in accordance with the Science Based Targets (SBT) framework. The CDP is an international non-profit organisation that collects emissions data and other climate-related data from companies.
At the end of September, 571,000 (543,000 on 1 Jan) employees and entrepreneurs, as well as 347,000 (347,000 on 1 Jan) pensioners were insured by Varma.
Varma Mutual Pension Insurance Company is a responsible and solvent investor of pension assets. The company is responsible for the statutory earnings-related pension cover of more than 918,000 people in the private sector. Premiums written totalled EUR 4.9 billion in 2020 and pension payments stood at EUR 6.0 billion. Varma’s investment portfolio amounted to EUR 56.6 billion at the end of September 2021.
Katri Viippola, Senior Vice President, HR, Communications and Corporate Social 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