Varma’s return on investments in January–September 2015 stood at 1.1%
The return on Varma’s investments was 1.1 (6.1) per cent, and at the end of September the value of investments totalled EUR 40.4 (39.9) billion. Solvency capital was strong at EUR 9.5 (10.4) billion.
“The nine-month return on investments remained positive, although returns in the equity markets in particular were negative in the third quarter. Our risk buffer, or solvency capital, remains strong even after a weaker quarter,” says Varma’s President & CEO, Risto Murto.
Owing to the major market movements, Varma’s solvency weakened during the third quarter but remained at a high level. The solvency capital was EUR 9,512 (10,403) million at the end of September, and 30.6 (35.0) per cent in relation to the technical provisions, i.e. on a very sustainable level.
Return on equity investments remained positive
The strong downward trend in the equity markets since the beginning of August weakened the return on equity investments, but the return was nevertheless positive, at 1.3 (7.5) per cent. Effective diversification across hedge funds, real-estate and unlisted securities helped offset the risks that resulted from the falling equity prices. Varma’s internationally diversified real-estate investment funds and private equity investments generated the strongest returns, at 10.2 (9.5) and 9.1 (11.8) per cent respectively. At 3.6 (8.0) per cent, hedge funds also yielded good returns, considering the unsettled market environment.
“The strong correction in the equity markets was initiated by the Chinese stock exchange and devaluation, and spread to Europe and the U.S. The plunge in equity prices had a clear impact on the return of Varma’s portfolio, due to the fairly high equity weight,” says Varma's CIO and deputy CEO Reima Rytsölä.
“Volatility in the market will continue, and these kinds of weaker quarters will also be seen in the future. Varma’s solvency allows risk taking. We believe that in a very loose monetary policy environment, higher equity risk pays off in the longer term, although in the short perspective it may undermine returns,” Rytsölä says.
At the end of September, the average annual nominal return on Varma’s investments over five years was 5.3 per cent, and over ten years 4.6 per cent; the respective real returns were 3.6 and 2.8 per cent.
Main challenge in Finland is growth
Pension assets have yielded good returns since the financial crisis and are record high. The pension reform will further improve the sustainability of the system. The main challenges will be growth and jobs, which are also essential for the pension system.
“The government faces the challenge of balancing the public economy while creating conditions for growth,” says Murto.
“Of the two challenges, it will be easier to bring the public economy into balance. The planned adjustments are substantially smaller than those of the eurozone countries that are in crises. The greater challenge will be creating growth in a situation where the current decade is in a danger of becoming clearly the weakest in terms of growth since post-Second World War economic history,” Murto adds.
(The figures presented are unaudited figures of the parent company.)
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 4.3 billion in 2014 and pension payments stood at EUR 5.0 billion. Varma’s investment portfolio amounted to EUR 40.4 billion at the end of September 2015.
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