Varma’s Financial Statement 2015: Return on investments 4.2% or EUR 1.7 billion
The return on Varma’s investments was 4.2 per cent, and the market value of investments increased to EUR 41.3 billion. Solvency capital amounted to EUR 10.0 billion. Varma’s premium income rose to EUR 4.6 billion.
“2015 was a good year for Varma. The recovery of investments after the financial crisis has continued for seven years, and last year’s return was 4.2% or EUR 1.7 billion. The company’s solvency remained at a high level, and premium income developed favourably in light of the muted development of the real economy,” says Varma’s President & CEO, Risto Murto.
Solvency capital was EUR 10.0 (10.3) billion at the end of the year, i.e. 31.4 (34.0) per cent of the technical provisions.
Volatile markets challenged
Varma’s investment result developed well in the first quarter of the year, but the rest of the year was turbulent.
“The investment year was highly volatile. At the start of the year, the equity markets were boosted by monetary policy stimulus measures, but the rise in share prices was consumed following the spring. Despite the fluctuating markets, Varma’s equity investments yielded a good return, but as regards fixed income investments, the challenges of the zero-rate environment were realised and yields were slightly negative,” says Varma’s Executive Vice-President Reima Rytsölä.
Of Varma’s investments, equity investments generated the highest returns, at 8.8 (9.1) per cent, and Finnish equities in particular performed strongly, yielding 19.4 (6.7) per cent.
Broad diversification of investments muted the risks caused by strong market movements, and returns were generated consistently by the different asset classes. Other investments yielded a return of 3.5 (8.4) per cent, and real estate investments 3.3 (3.8) per cent. The return on fixed-income investments remained slightly negative, at -0.4 (5.8) per cent.
The average ten-year nominal return on Varma’s investments was 4.8 per cent and the five-year return 5.1 per cent. The real returns were 3.0 and 3.6 per cent respectively.
Oil dominated the markets towards the year-end
Raw material prices fell, and the price of oil declined sharply especially in the last months of the year.
“The correlation between oil and share prices has increased markedly. In recent years, major investments have been made in the energy sector, and now, in an era of lower energy prices, the profitability of these investments must be re-evaluated,” Rytsölä adds.
Varma’s premium income rose clearly
Varma’s premium income increased 5 per cent to EUR 4,576 million. At the end of 2015, 524,000 people were insured by Varma, and the total payroll is estimated to have increased 3 per cent. Varma paid out pensions in the amount of EUR 5.2 (5.0) billion to around 337,100 people.
“Varma achieved a good result in sales, which is reflected in the better-than-average development in payroll. Our customers benefit from our cost-effective operations and strong solvency in the form of competitive client bonuses”, Murto says.
EUR 115 (117) million was set aside for client bonuses, equalling 0.6 (0.7) per cent of the TyEL payroll.
Economic shift influences Finnish export companies
2015 marked the end of an era for the global economy and Finnish export companies. The growth of emerging markets slowed down, and at least half of the original BRIC countries were in a deep recession. China’s investment-driven growth is also becoming more balanced.
“Finnish industry is suffering from the substantially lower global demand for equipment and raw materials,” Murto says.
The strong decline in raw material prices increased the deflationary pressures in the global economy.
“The fact that central banks are fighting for inflation through zero interest rates is positive, but a prolonged use of this remedy may also have serious side effects. The zero-rate environment does, however, support indebted countries,” Murto adds.
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 41.3 billion at the end of 2015.
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Report of the Board of Directors (pdf)
Financial Statement transparencies (pdf)
Risto Murto’s comments on the Financial Statements (video, in Finnish)
Reima Rytsölä’s comments on the result and market outlook (video, in Finnish)