In 2016, the return on Varma’s investments was 4.7% (4.2%) or EUR 2.0 billion. The market value of investments increased to a record high: EUR 42.9 (41.3) billion. Solvency strengthened by EUR 243 million and amounted to EUR 10.2 (10.0) billion at year-end.
“2016 provided Varma with a positive surprise. A challenging year turned out to be a good one. Political risks will dominate the economy also this year,” says Varma’s President & CEO Risto Murto.
“Solvency, which is strategically important, strengthened and investment assets increased. The company is in strong shape. The processing times of pension applications shortened significantly, and our premium income rose,” Murto adds.
Surprising investment year
The investment year was characterised by many events, such as the Brexit vote and US presidential elections, whose risks did not materialise as expected. Early in the year, the investment markets were volatile due to concerns over the weakening of China’s economic growth and the decline in the prices of raw materials.
”Towards the end of 2016, the market sentiment was rather unusual: the outcome of the Brexit vote and the election of Trump as the next president of the US caught the markets by surprise, but so did their impacts on the equity market,” says Varma’s Reima Rytsölä, Executive Vice President, Investments.
Of Varma’s investments, unlisted equity investments and private equity generated the highest returns, at 23.7% (21.2%) and 11.2% (7.8%) respectively, managing to avoid the effects of the stock market decline in the beginning of the year. Listed equity investments generated a return of 4.5% (8.0%). Fixed income investments also yielded good returns, at 4.2% (-0.4%).
“Varma’s investment result developed in line with the markets and strengthened in the second half of the year. The solid return on fixed-income investments at this interest rate level is exceptionally good,” Rytsölä adds.
The return on real estate investments remained negative, at -0.9% (3.3%), as a result of net impairments of EUR -218 (-88) million. The return on other investments grew to 5.3% (3.5%); of these, hedge funds yielded a return of 5.6% (3.9%).
At the end of 2016, the average annual real investment return over five years was 5.4%, and over ten years 2.6%.
“Varma’s investment activities focus on maintaining the company’s strong solvency and broad diversification of investments, with a strong emphasis on risk management,” says Rytsölä.
Pension reform reflected in customer service
The pension reform was reflected in our customer service. Customers were interested in the new pension type, partial old-age pension. The new type of pension is currently being paid to around 120 people.
“Partial old-age pension replaced the part-time pension at the turn of the year. It is important to remember that partial old-age pension permanently reduces the amount of final pension,” Murto says.
Varma paid out pensions in the amount of EUR 5.3 (5.2) billion to around 340,100 (337,100) people. A total of 22,579 (23,113) new pension decisions were made during the year. The pension application processing times showed substantial improvement: the average processing time fell from 60 days to 44 days, which is clearly shorter than the sector average.
Premiums written increased to EUR 4.7 (4.6) billion. At the end of the year, 529,900 people were insured with Varma.
Politics to dominate the 2017 economy
2016 was characterised by political surprises, and politics will not be leaving the scene this year either with several important European elections on the horizon. The change agenda of the new US administration is also extensive.
In terms of Finland, the general direction taken by the EU in the future will be resolved in the elections of its major countries, Germany and France.
“In 2017, the US will be determining its relationship to protectionism, and Europe will settle the future of the EU. Politics is now in the driver’s seat, and the investment market will follow its lead,” says Murto.
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 870,000 people in the private sector. Premiums written totalled EUR 4.7 billion in 2016 and pension payments stood at EUR 5.3 billion. Varma’s investment portfolio amounted to EUR 42.9 billion at the end of 2016.
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