Varma’s interim report 1 January–31 March 2015: Return on investments 5.3%
Varma’s investments yielded a return of 5.3 per cent in the first quarter of the year. The market value of investments reached EUR 42.6 billion, and solvency capital increased to EUR 11.7 billion.
“For pension investors, this year started out exceptionally strong. During the first three months of the year, investment income increased to as high as EUR 2.7 billion,” says Varma’s President & CEO Risto Murto.
The return on Varma’s investments in January–March was 5.3 (2.0) per cent, and the market value of the investments increased to EUR 42.6 (38.7) billion. As a result of the good return development, solvency capital was EUR 11.7 (9.1) billion at the end of March, i.e. 38.1 (32.9) per cent of the technical provisions.
Equities and strong dollar boosted returns
The investment markets got off to an exceptional start in 2015. The European Central Bank launched a massive bond purchase programme, which caused the already near-zero interest rates to fall further. Share prices climbed strongly.
“Money printed by the ECB has transferred to shares. The European markets have been in a state of euphoria as the continent’s share markets have caught up to the U.S.,” says Varma’s CIO Reima Rytsölä.
The return on Varma’s investments was improved especially by the strong increase in share prices and the strengthening dollar. A proportion of the currency position was unhedged.
The return on all asset classes was clearly positive, with equity investments generating the highest returns, at 9.6 (2.6) per cent. Owing to the decline in interest rates, the return on fixed-income investments was also good at 2.0 (1.5) per cent. Other investments (hedge funds included) yielded a good return at 4.7 (1.9) per cent, and the return on real estate investments was consistent at 2.0 (2.1) per cent.
“I would be surprised if the equity markets continued to perform this strongly until the end of the year. The equity markets, which performed strongly during the first quarter, are prone to corrections although they are supported by negative interest rates,” says Rytsölä.
Varma paid out pensions totalling EUR 1.2 (1.1) billion to around 334,400 pensioners in the first quarter.
Challenged by zero interest rates, low level of investments and poor productivity
Finland’s future government will face major challenges concerning the country’s economic growth and public sector balance.
“Balancing the public sector will be a challenging, but not an impossible, task in the mid-term. The agreed pension reform will play an important role in closing the sustainability gap,” says Murto.
“A much bigger challenge relates to increasing the long-term growth potential of the national economy. The zero-rate environment, low level of investments and poor development of productivity all paint a bleak picture. There’s a shortage of growth and innovation,” Murto states.
Varma Mutual Pension Insurance Company is the largest earnings-related pension insurer and private investor in Finland. The company is responsible for the statutory earnings-related pension cover of more than 860,000 people in the private sector. Premiums written totalled EUR 4.3 billion in 2014 and pension payments stood at EUR 5.0 billion. The company’s investment portfolio amounted to EUR 42.6 billion at the end of March 2015.
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