The return on Varma’s investments in January–June was –0.3 (4.3) per cent, and the market value of the investments was EUR 41.2 (41.9) billion. Varma’s solvency remained strong and amounted to EUR 9,136 (10,956) million.
“Varma has recovered well from the financial crisis, and the company’s solvency is at a high level, despite the volatility in the equity markets. For pension investors, the markets have been quite sluggish for more than a year now, in a zero interest rate and zero return environment,” says Varma’s President & CEO, Risto Murto.
Diversification of investments provides protection during market turmoil
The weak price development in the equity markets early in the year dampened Varma’s investment returns, which were slightly negative. The diversification of investments across government bonds, real estate and unlisted securities, which yielded positive returns early in the year, mitigated the effects of the plummeting equity markets.
Of Varma’s investments, unlisted equities and private equities generated the highest returns, at 13.5 (6.4) per cent and 4.0 (6.6) per cent respectively, as they were unaffected by the plummeting equity markets early in the year. The return on equity investments was –3.1 (8.3) per cent. In the low market interest rate environment, fixed income investments generated a good yield of 2.2 (0.3) per cent, and real estate investments also produced a stable return of 2.6 (3.4) per cent.
Investment markets suffering from increased lack of perspective
“Sustainable economic growth has been highly anticipated in Europe, but the path to growth always seems to be fraught with new uncertainties. The markets have recovered from the post-Brexit slump surprisingly quickly, and they once again have their eyes fixed on the helping hand of the central banks. After every setback, the central banks inject more money into the markets, which helps bolster the equity markets. The question is, how long can Europe’s other problems be swept under the rug with the help of ultra-light monetary policies?” asks Varma’s Executive Vice-President and CIO Reima Rytsölä.
“One major difference between Europe’s and the US’s ability to emerge from the financial crisis is the state of their banks. US banks were cleaned up faster, which helped get the nation’s economy back on its feet,” says Rytsölä.
Climate policy reduces carbon footprint of investments
In May, Varma published a climate policy that steers its investments. It was the first Finnish earnings-related pension company to do so.
“The goal is to develop our portfolio such that our investments are in line with the 2-degree target. We have calculated the carbon footprint of our investments, and it is considerably smaller than the comparison index. Varma’s listed equity investments are not heavily weighted in carbon-intensive sectors,” Rytsölä points out.
Electronic system speeds up pension application processing
In January–June, Varma paid out pensions in the amount of EUR 2.4 billion to 337,260 people. A total of 11,374 new pension decisions were made, which is 4 per cent more than in the corresponding period last year. Varma has been able to process pension applications more quickly thanks to its new electronic application processing system.
The number of employees and entrepreneurs insured with Varma totalled 526,100 at the end of June.
Economic and political uncertainty continue
“Economic development is still shrouded in considerable uncertainty, but this year the attention has shifted from the economy to politics. The biggest changes and risks at the moment are in the international political arena. After the Brexit vote, interest has shifted to the US presidential election,” says Murto.
(The figures are unaudited figures of the parent company)
Varma Mutual Pension Insurance Company is the most solvent earnings-related pension company and largest private investor in Finland. The company is responsible for the statutory earnings-related pension cover of some 860,000 people in the private sector. Premiums written totalled EUR 4.6 billion in 2015 and pension payments stood at EUR 5.2 billion. Varma’s investment portfolio amounted to EUR 41.2 billion at the end of June 2016.
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