In 2019, Varma’s investments yielded a record-high return of EUR 5.2 billion, or 12.0% (–2.0%). By year-end, the market value of the investments rose to EUR 48.7 (44.0) billion. Varma’s pensions assets have doubled since the financial crisis. Efficiency remained at an excellent level, which means that Varma is able to pay the highest client bonuses ever.
In the last 20 years, Varma’s investments have yielded better returns only in 2009, when the equity markets recovered from the financial crisis.
“Varma had strong returns on its investments in 2019. Thanks to the good returns of the past decade, our pension assets have never been higher than they are now,” says Varma’s President and CEO Risto Murto.
“We were also successful in customer acquisition, which resulted in record-high TyEL insurance sales, at EUR 144 (65) million. We succeeded well in all customer segments,” Murto continues.
The good investment returns strengthened Varma’s solvency capital, which rose to EUR 11.6 (9.6) billion, i.e. to 1.8 times the solvency limit.
The return on Varma’s investments was 12.0% (–2.0%), with listed equities performing the strongest, at 25.4% (–8.3%). The return on unlisted equities, at 16.9% (3.8%), and private equity investments, at 15.1% (17.5%), was also strong. The return on fixed-income investments was 4.5% (–1.8%), on real estate 4.1% (5.5%), and on hedge funds 5.0% (1.6%).
“A major reason for the strong returns was the intense stimulus measures by the central banks. There was a major shift when the US central bank, which had started interest rate hikes, reverted to expansionary monetary policy a year ago in January,” says Varma’s CIO Reima Rytsölä.
“The investment market’s reaction to the political and economic risks that emerged during the year was surprisingly subdued. Towards the end of the year, concerns over the decline of global growth eased. The final quarter of the year was another strong period in terms of investment returns. All of Varma’s asset classes generated good returns on the heels of the strong equity returns,” Rytsölä says.
Zero interest rates and low birth rate challenge the pension system
Since 2009, the return on Varma’s pension assets is EUR 26 billion, i.e. the assets have doubled during this period. Good investment returns guarantee that solvency, which serves as a risk buffer, is at a strong level.
“The pension system has been developed well over the years. In Finnish working life, we are also learning more and more how to extend careers. The employment rate improved the most in the 55–64 age group in 2019,” says Murto.
“If the current zero interest rate environment and low birth rate turn out to be permanent phenomena, there will be challenges for the pension system. It takes time for changes in the pension system to materialise, and fortunately there is time to explore how the system should be improved. Before anything else, we should discuss how to increase the return potential of pension assets, for instance, through increased equity weight,” Murto says.
Varma targets a carbon-neutral portfolio by 2035
Varma renewed its climate targets, according to which Varma’s goal is to have a carbon-neutral investment portfolio in 2035. Emissions will be gradually reduced in each asset class. The goal is that by 2025, one fifth of Varma’s investment portfolio will consist of investees that either directly or indirectly mitigate the advancement of climate change.
In 2019, Varma developed, in collaboration with other parties, two sustainable exchange-traded funds (ETF), and invested a total of EUR 700 million in them.
Higher client bonuses – Varma to refund EUR 171 million to its customers
Varma’s operational efficiency was at an excellent level. In 2019, administrative costs totalled EUR 86 million, which is 62% (60%) of the expense loading included in the contributions. The smaller the percentage is, the more efficient the company is. Varma’s solvency and efficiency benefit clients in the form of bonuses, which amount to EUR 171 (153) million. The bonuses are granted as deductions in insurance contributions.
During the 2019 account transfers, EUR 74 (5) million in net TyEL income was transferred to Varma from other earnings-related pension companies, and EUR 70 million in new TyEL policies were sold.
Varma launched a research programme on disability risk management
Varma reformed its disability risk management services in 2019, opened a new digital learning environment, Varma Academy, for its customers, and launched a research programme on disability risk management.
Varma’s work ability management services, service development, research, and rehabilitation and disability pension services make up the new Disability Risk Management function as of the beginning of 2020.
Pension applications processing accelerated
Pension applications processing accelerated from the previous year. Varma’s total processing time for pension applications was 25 days, which means that Varma’s customers receive their decisions 10 days faster than the sector average.
Varma paid out pensions in the amount of EUR 5.9 (5.7) billion to 343,700 (343,400) people. A total of 51,054 (51,057) pension decisions were made during the year. Of individual pension types, the number of partial old-age pension applications increased 20.4% and the number of disability pension applications 7.1% from 2018.
Premiums written increased to EUR 5.3 (5.1) billion. At year-end, 541,926 (559,981) people were insured by Varma.
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 5.3 billion in 2019 and pension payments stood at EUR 5.9 billion. Varma’s investment portfolio amounted to EUR 48.7 billion at the end of 2019.
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