Efficiency at record level, the last quarter pushed investment return into the negative

Efficiency at record level, the last quarter pushed investment return into the negative

15.02.2019
about Varma
investment and economy
News

The unstable performance of global equity markets in the final quarter of the year pushed Varma’s investment returns for the full year into negative territory. At year-end, the market value of Varma’s investments stood at EUR 44.0 (45.4) billion. Efficiency improved further to an all-time record high. Varma used 60% (67%) of the insurance contributions meant for operating expenses.

“The return on Varma’s investments fluctuated during 2018. There was a widescale fall in share prices especially towards the end of the year, and the overall return for the whole year was rendered negative by the last quarter,” says Varma’s President & CEO Risto Murto.

“From a pension investor’s view, this is nothing out of the ordinary. The financial crisis was followed by a period of very strong investment returns and hence our solvency, which serves as a risk buffer, is still at a strong level,“ Murto adds.

The return on Varma’s investments was –2.0% (7.8%), and the market value of investments was EUR 44.0 (45.4) billion at year-end. Solvency capital amounted to EUR 9.6 (11.5) billion, which is 1.6 times the solvency limit.

The average 5-year nominal return on investments was 4.3% and the ten-year return was 6.0%.

Exceptionally difficult end of year in the investment markets

Uncertainty over economic growth heightened towards year-end, and restlessness in the equity markets increased significantly. This was the result of many factors, including interest rate hikes by the Fed and the trade war between the US and China.

“Several risk factors combined caused the key financial figures to fall. The last quarter was an exceptionally difficult period in recent history, as it was difficult to identify risk-diversifying investments in the markets, says Varma’s CIO, Reima Rytsölä.

Real estate 5.5% (4.9%) and hedge funds 1.6% (8.5%) yielded the best returns of Varma’s investments. The return on fixed income investments was negative, at –1.8% (3.7%), and equity investments yielded a return of –3.6% (11.4%). Of equity investments, the highest return was generated by private equities, at 17.5% (7.9%).

“Since Christmas, market sentiment has clearly improved, and both equity and credit risk markets have recovered significantly during the early year,” Rytsölä adds.

Varma’s goal is to reduce the carbon footprint of its investments, and to develop the portfolio to comply with the Paris Agreement. In 2018, the carbon footprint of listed equity investments was 17% lower than the 2015 baseline. The carbon footprint of corporate bonds and real estate also shrunk, by 28% and 17% respectively.

Finland’s economic growth depends on export markets

Two years of strong growth for Finland have improved the employment rate and balanced public finances. However, the growth rate of Finland’s important export markets, especially Germany and China, clearly dwindled toward year-end.

“Sustaining growth is unfortunately out of Europe's hands now. This year’s sentiment will be determined by trade talks between China and the US, and possible expansionary measures by these two countries,” says Murto.

Varma to refund EUR 153 million to customers in the form of client bonuses

Varma used 60% (67%) of the insurance contributions meant for operating expenses. Efficiency improved further from 2017, when Varma was already by far the most efficient earnings-related pension insurance company in Finland. In 2017, the earnings-related pension insurance companies used an average of 82% of the loading profit. The smaller the percentage is, the more efficient the company is.

Varma will refund EUR 153 (161) million to its clients as client bonuses, thanks to its efficiency and solvency. This will translate to discounts in our customers’ insurance contributions.

Upward turn in disability pensions

The good trend in pension application processing continued. The average processing time for pension applications shortened from 37 days to 31 days, which is nine days quicker than the average for the sector.

Of individual pension benefits, the biggest change took place in disability pensions. The number of those who retired on disability pension increased by 10% at Varma in 2018. New disability pensions increased the most among those over 60 and under 45 years of age.

During 2018, EUR 5 million in premiums written were transferred to Varma from other earnings-related pension companies, and EUR 60 million in new TyEL policies were sold. Varma did especially well in the small company segment. The core of customer work is workability management, an area in which Varma is constantly developing new tools, for example, for identifying workability risks at an earlier stage.

Varma paid out pensions in the amount of EUR 5.7 (5.5) billion to 343,400 (342,600) people. A total of 22,476 (24,507) new pension decisions were made during the year. Premiums written increased to EUR 5.1 (4.9) billion. The number of insured also increased, and stood at 559,981 (537,241) people at the end of the year.

Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 900,000 people in the private sector. Premiums written totalled EUR 5.1 billion in 2018 and pension payments stood at EUR 5.7 billion. Varma’s investment portfolio amounted to EUR 44.0 billion at the end of 2018.

Further information:

  • Katri Viippola, Senior Vice-President, HR, Communications and Corporate Social Responsibility, tel. +358 400 129 500 or firstname.lastname@varma.fi
  • Marjut Tervola, Communications Manager, tel. +358 45 673 0120 or firstname.lastname@varma.fi


Attachments:
Financial Statement presentation (pdf)
Report of the Board of Directors (pdf)

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