Uncertainty returned to the markets – unlisted investments generated the strongest return of Varma’s investments

The uncertainty of economic cycles in the third quarter of the year was reflected in the development of Varma’s investment returns. The best returns came from unlisted private equity investments and hedge funds. Varma is the world’s third and Finland’s first pension insurance company to have its science-based emission reduction targets validated.

The return on Varma’s investments in January–September was 2.8 (-4.9) per cent. The value of Varma’s investments was EUR 57.5 (56.2 on 1 Jan) billion.

“So far, the year has delivered relatively ordinary returns to pension investors, but towards autumn, the outlook weakened clearly. In terms of Finland’s and the eurozone’s economic growth, it is crucial for the ECB to be able to lower its interest rates next year,” says Risto Murto, Varma’s President and CEO.

Varma’s investments are broadly diversified. The best returns in January–September came from unlisted private equity investments and hedge funds. The return on private equity investments was 6.7 (13.5) per cent, hedge funds 5.0 (5.6) and listed equity investments 2.9 (-19.3) per cent. Fixed income investments returned 1.5 (-6.4) per cent and real estate investments -2.6 (5.5) per cent.

“The optimism that was in the air during the second quarter disappeared over the past autumn. The rise in long-term interest rates has brought uncertainty to the economy, and stock prices fell from their summer peak. The rise in short-term interest rates has stabilised and inflation is slowing, but central banks are expected to continue their tight monetary policies,” says Chief Investment Officer Markus Aho.

Varma’s solvency ratio was EUR 129.6 (130.5 on 1 Jan) per cent, and solvency capital was 1.7 times (1.8 on 1 Jan) the solvency limit.

Client companies’ financial situation is strained but bankruptcy development is still moderate

The TyEL payroll of Varma’s client companies grew 5.5 per cent in January–September compared to a year ago. Payroll growth decelerated marginally during the third quarter. Payroll development was the weakest in construction sector companies.

The tightened economic situation has also had an impact on Varma’s client companies. The number of payment reminders sent to client companies for earnings-related pension insurance contributions is growing, and the number of bankruptcies among client companies is almost a third (30.5 per cent) higher than last year. The number of TyEL contributions that have been taken to debt collection has grown less strongly, and outstanding payments have remained on a relatively moderate level compared to the pandemic years.

“Although the number of payment reminders and demands for payment under threat of bankruptcy has increased clearly, a large part of those receiving a reminder are able to make the payments within the given timeframe. There are many newly started and small-scale entrepreneurs among the companies that have gone bankrupt,” Murto says.

Varma set science-based targets (SBT) for reducing emissions

Varma is Finland’s first and the world’s third pension insurance company to receive official validation for its emission reduction targets, which are based on the Science Based Targets initiative (SBTi). The companies that have joined the international SBT initiative commit to reduce their greenhouse gas emissions in line with the Paris Agreement.

Varma’s science-based target is to reduce the greenhouse gas emissions related to its own operations by 60 per cent by 2030 compared to the 2021 level. In terms of indirect greenhouse gas emissions, a target has been set for listed equities, corporate bonds and real estate funds. In these asset classes, Varma’s target is to increase the share of companies committed to the SBT initiative to 51 per cent by 2027.

Varma examined the responsibility of its fund management companies by conducting a comprehensive survey. More than four out of five fund management companies managing Varma’s investments have signed the UN Principles for Responsible Investment. Responsibility principles were fully or partially aligned with Varma’s principles in 97 per cent of the fund management companies.

Already a third of new old-age pensions start as partial pension

The number of applications for partial early old-age pension grew in January–September by 5.3 per cent compared to last year. Especially the share of applicants aged 61 has been growing. Partial old-age pension can be applied for at the earliest at the age of 61, and the amount withdrawn can be 25% or 50% of the accrued pension without giving up working.

The popularity of partial old-age pension has been reflected in the commencing new old-age pensions. In January–September, more than every third new old-age pension began as an early pension, compared to less than a quarter last year.

The number of new disability pensions granted grew by 10.1 per cent compared to the same period in 2022. The number of new disability pensions has increased in all age cohorts, with the exception of those under the age of 25. The most significant growth was among over-60-year-olds.

The number of vocational rehabilitation applications increased 11.9 per cent compared to the same period last year. Of the rehabilitants, 86.3 per cent were available to the labour market at the end of rehabilitation.

Varma Mutual Pension Insurance Company is a responsible and solvent investor of pension funds. The company is responsible for the statutory earnings-related pension cover of 970,000 people in the private sector. Varma’s premiums written totalled EUR 6.1 billion in 2022 and pension payments stood at EUR 6.5 billion. Varma’s investment portfolio amounted to EUR 57.5 billion at the end of September 2023.

Additional information:

Hanna Kaskela, Senior Vice President, Sustainability & Communications, tel. +358 40 584 5045 or hanna.kaskela(at)varma.fi

Marjut Tervola, Communications Manager, tel. +358 45 673 0120 or marjut.tervola(at)varma.fi


Interim report presentation

Interim report

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