In 2017, the return on Varma’s investments was 7.8% (4.7%) or EUR 3.3 billion. Value of investments grew to EUR 45.4 (42.9) billion. Solvency strengthened by EUR 1.3 billion and amounted to EUR 11.5 (10.2) billion at year-end. Cost efficiency continued to show positive development: Varma used 67% (72%) of the insurance contributions meant for operating expenses.
“2017 was a profitable year for Varma in all areas of business, and investments yielded a good return. The company’s investments assets, solvency capital and cost efficiency were among the best in the company’s history,” says Risto Murto, President & CEO.
Strong returns as the economy gains momentum
Of Varma’s investments, the highest returns were generated by unlisted equities, at 18.5% (23.7%), and listed equities, at 11.6% (4.5%). Private equity investments yielded a return of 7.9% (11.2%), and fixed-income investments 3.7% (4.2%). Finnish listed equities yielded 11.9% (5.4%).
“All of Varma’s asset classes generated positive returns. The pick-up in the global economy led to booming equity markets worldwide, and the strong return on Varma’s investments had a direct correlation with the economy. Brisk economic progress will continue, unless the wings of growth are clipped by central banks’ tightening monetary policy,” Varma’s CIO Reima Rytsölä comments.
“Economic development is globally strong and balanced. The US tax reform has boosted US share prices to a record high. Last year there was little to fear in the markets – now in February, fear has returned with a vengeance,” Rytsölä adds, referring to the equity market decline in recent weeks.
Especially delightful was the return on hedge-fund investments, at 8.5% (5.6%), which was achieved with a clearly lower risk profile than in the equity market. Real estate investments yielded good returns, at 4.9% (–0.9%). The international diversification of real estate investments has continued, and the portfolio was actively developed through divestments and new Finnish and foreign investments.
The average annual real investment return over five years was 5.8%, and over ten years 3.0%.
Varma’s goal is to reduce the carbon footprint of its investments, and to develop the portfolio to conform with the targets of the Paris climate agreement. In 2017, the carbon footprint of Varma’s listed equity investments declined by 27% from the 2015 baseline. The carbon footprints of corporate bonds and real estate also declined, by 22% and 18% respectively. This result was achieved, for example, by focusing on low-emissions industries and by avoiding emissions-intensive industries such as energy and mining.
Varma to pay back EUR 161 million to customers in the form of client bonuses
“Varma is the most efficient company in the earnings-related pension sector. I am especially happy with Varma’s all-time best loading profit. Strong solvency and efficient operations contribute to the sustainability of the earnings-related pension system and benefit both current and future pensioners,” Murto says.
Varma will pay EUR 161 (121) million back to its clients as client bonuses for 2017. The composition of client bonuses paid by earnings-related pension companies changed as of the beginning of 2017. The bonuses to be paid to Varma’s clients include the entire loading profit. In addition to this, one percent of the solvency capital is distributed as part of the client bonuses.
Varma processes pension applications faster than average in the sector
Varma processes applications for all pension benefits faster than average in the sector. The processing times were further reduced thanks to fine-tuning the process, the introduction of software robotics and our specialists’ competence. The average processing time fell from 44 days to 37 days, which is six days faster than the sector average.
Varma granted the first-ever years-of-service pension in the sector. This pension benefit was introduced with the 2017 pension reform. The recipients of the new partial old-age pension numbered 2,430.
Varma paid out pensions in the amount of EUR 5.5 (5.3) billion to 342,600 (340,100) people. A total of 24,510 (22,550) new pension decisions were made during the year. Premiums written increased to EUR 4.9 (4.7) billion. At the end of the year, 537,240 people were insured with Varma.
Improving employment bolsters the entire pension system
Towards the end of the year, faster economic growth was reflected positively in employment rates.
“The investment returns in recent years mean that Finland’s pension assets are at a record high, both in terms of euros and in proportion to the economy. Returns on these assets are needed to cover the increasing pension expenditure. In this respect, strong investment returns help protect the Finnish welfare state,” says Murto.
“The best piece of news for the pension system last year, however, was the improvement in the employment rate. Finland had luck as well as skill, as the clearly improved global economy and Finland’s own measures helped drive domestic growth,” Murto says.
Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 880,000 people in the private sector. Premiums written totalled EUR 4.9 billion in 2017 and pension payments stood at EUR 5.5 billion. Varma’s investment portfolio amounted to EUR 45.4 billion at the end of 2017.
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Financial Statement transparencies (pdf)