Annual Report 2014


Solvency at a record-high level

Varma’s solvency reached a new record in 2014. Strong solvency helps to secure pensions and improves client bonuses.

In 2014 Varma’s solvency increased to a record-high level measured in both euros and relative terms. At the end of 2014, solvency capital was EUR 10,252 million (9,140), or 34.0 (31.6) per cent of the technical provisions.

Our high solvency is the result of several good investment years.

Solvency also has a major effect on the size of client bonuses. Owing to our strong solvency, we are able to transfer the highest amount ever – EUR 117 (105) million – to client bonuses for our customers from 2014. For several years now Varma has been paying very competitive client bonuses.

Thanks to our strong solvency, we can aim for higher returns on pension assets.

Risk taking requires strong solvency

Strong solvency is a strategic choice for Varma. Thanks to our high solvency capital, we can aim for higher returns on pension assets by making higher-risk investments with a higher return potential. The higher the risk of investments, the greater the amount of solvency capital required. In the long term, good investment returns help secure the financing of pensions.

During economically lean periods, strong solvency provides a good buffer against volatility in the capital markets. The solvency capital requirements are laid down in the law and dimensioned so that solvency capital will be sufficient also during lean economic periods. The key requirement is the solvency limit, which is based on the risk level of investments. The insurance risk is also taken into account in the calculation of the solvency limit. Varma’s solvency limit at the end of 2014 was 15.8 (14.5) per cent of the technical provisions, and the solvency capital’s ratio to the solvency limit was 2.2 (2.2).


Solvency regulations will be amended

Regulations concerning the calculation and diversification of pension institutions are in a process of change. In future all the relevant investment risks and insurance risks will be taken better into account in the calculation of solvency. The law is expected to enter into force at the start of 2017.

The solvency of earnings-related pension companies will also be affected by the pension reform, which will change the way in which the return requirement on pension liabilities is determined. As of 2017 the equity-linked provision for current and future bonuses will be raised from 10 to 20 per cent. These changes will increase earnings-related pension insurance institutions’ possibilities to invest in equities. The share of equities of the entire investment portfolio will, however, be limited to a maximum of 60 per cent.

We report on the development of our solvency on a quarterly basis.