Varma’s return on investments in January–September stood at 3.1%. Unlisted equity investments and private equity funds generated the best returns. In a zero-interest environment, fixed income investments also yielded very good returns.
“By the end of September, Varma’s investment returns had made a clear recovery from the post-Brexit market shock. The reporting period was also operationally successful for Varma, as we considerably speeded up our pension processing times and recorded a strong sales result,” says Varma’s CEO, Risto Murto.
Varma’s solvency capital strengthened and amounted EUR 10.1 (9.5) billion at the end of September. The solvency ratio remained high, at 31.0 (30.6) per cent.
Of Varma’s investments, unlisted equities and private equity generated the highest returns, at 15.4 (9.0) per cent and 8.1 (9.1) per cent respectively.
Fixed income investments yielded good returns, thanks to the falling interest rate levels and lighter credit risk pricing. In the low interest rate environment, the return on fixed income investments was exceptionally high, at 4.2 (–0.2) per cent. Real estate investments yielded a return of –0.4 (2.3) per cent, and were weighed down by write-downs made in response to renovations and changes in the market situation.
Period of calm in the markets
The equity markets have recovered from the uncertainty caused by the Brexit referendum. The realised financial figures at the end of summer exceeded expectations both in Europe and the US.
“A period of calm has overtaken the markets; the financial figures after the Brexit vote have been better than expected. Investors are interested in whether confidence in economic growth is more of a political creation than a reflection of genuine growth, and in how essential growth is in terms of their investment portfolios,” says Varma’s CIO Reima Rytsölä.
Strong development in customer account efforts
The processing times for Varma’s pension decisions have been considerably shortened, by an average of 10 days. A total of 17,497 new pension decisions were made in January–September. We paid a total of EUR 3.7 billion in pensions to 339,900 people. The number of rehabilitation applications received by Varma has grown 5.3 per cent in a year, as employees have been actively steered to seek rehabilitation.
The account transfer round between pension companies at the end of September was very fruitful for Varma: the cumulative result for TyEL insurance policies was EUR 42.9 (52.2) million. The result for YEL insurance was approximately –1,300 policies. At the end of September, Varma provided insurance for 536,000 employees and self-employed persons.
“Varma recorded one of its best sales results in the company’s history. We have grown particularly among mid-sized companies, but we have work to do with entrepreneurs. To that end, we intend to reinforce our entrepreneur sales team,” says Murto.
Low interest rates pose future challenge
The pension system’s investment returns have been good for some time now. The real return on Varma’s investments since 1999 is 3.8 per cent, 3.0 per cent for the past ten years, and 5.6 per cent for the past five.
“Investment returns have been at a good level since the financial crisis. The investment environment, however, has been highly exceptional, especially in terms of interest rates. It is especially important to note that zero interest rates have not yet had a negative effect on pension investors’ returns. If the interest rate level remains at zero for a long time, however, achieving good returns on accrued pension assets will be a major challenge,” Murto stresses.
“Western countries are undergoing a historic shift as the population ages and the growth of workforce comes to a halt in many countries. This has already been reflected in the sluggish economic growth and the continuously falling interest rate level. Future economic growth will continue to slow down,” 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 42.4 billion at the end of September 2016.
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