Annual Report 2014


Corporate Governance Report

This report is based on the Finnish Corporate Governance Code. Varma complies with the Code provisions that apply to the statutory activities of earnings-related pension insurance companies. The deviations from the Code are detailed below in the section “Deviations from the Finnish Corporate Governance Code”. This report describes the situation on 31 December 2014. The up-to-date report can be viewed at

Main features of the internal control and risk management systems connected with the financial reporting process

Varma’s financial reporting is in accordance with the Accounting Act, the Limited Liability Companies Act, the Insurance Companies Act, the Employee Pension Insurance Companies Act and the Act on the Calculation of the Pension Provider’s Solvency Border and the Covering of the Technical Provisions, the decree of the Ministry of Social Affairs and Health on financial statements and consolidated financial statements of insurance companies, the Accounting Decree, the technical bases approved by the Ministry of Social Affairs and Health and the regulations issued by the Financial Supervisory Authority.

Varma’s Board of Directors decides on the content and organisation of internal company control and on the implementation of the internal control sectors and principles, and approves both the joint guidelines for the internal control of the Varma Group and the risk-management plan. The Board of Directors makes an annual assessment of whether the internal control is appropriately organised. The contents of the financial reporting presented to the Board of Directors are laid down in the Board of Directors’ charter and in the investment plan.

All financial reporting to the Board of Directors, company management and the authorities is carried out by Varma’s Financial Administration independently of the function to be reported on. The company’s result and solvency position are calculated daily.

The Board of Directors receives regular reports on, among other things, the total result, the balance sheet and the income statement at fair value, solvency position, details of investments classified according to risk, investment returns, derivative and foreign currency positions, risk concentrations and assets covering the technical provisions. Financial Administration also provides reports on the monitoring of risk limits laid down in the investment plan and on the use of authorisations, and carries out controls on the valuation of investments. In addition to the above, Investment Operations also submits reports on its activities to the Board of Directors. Adherence to authorisations and allocation, and investment assignments are monitored on a daily basis. Actuaries see to it that the insurance contributions and the technical provisions are calculated in accordance with the technical bases and the regulations issued by the Ministry of Social Affairs and Health and the Financial Supervisory Authority.

In addition to the information required under the provisions, Varma also publishes quarterly interim reports. In order to increase transparency, Varma publishes its balance sheet and income statement at fair value and its investments and their returns, grouped in accordance with risks.

From the point of view of Varma’s financial reporting, the most important elements are the valuation of the investments, the investment return at fair value, the interest credited on technical provisions, and the company’s solvency capital in relation to the solvency limit, which in turn is determined on the basis of the risks involved in each investment (solvency classification).

The risk-bearing capacity of the investment operations is determined on the basis of the solvency indicators. The adequacy of the assets covering the technical provisions must be known at all times.

The technical provisions are calculated on the closing date and in accordance with the best technical estimates during the financial year. Exact annual calculations are finalised in late spring. The division of responsibility between earnings-related pension companies is handled via the Finnish Centre for Pensions each year.

The tasks of the investment risk management within the Actuaries, which is independent of the risk-taking operations, include the identification of the risks contained in the investments, measurement of risk levels and reporting.

The Board of Directors decides on the principles concerning the use of derivative contracts and the principles for the solvency classification of investments. Investment Operations submits proposals and the CEO decides on the risk classification of investments in accordance with the classification criteria laid down by the Board of Directors, and the independent risk-management function will give an opinion on the proposals. The solvency classification of investments is reviewed on a regular basis. The Board of Directors receives an independent monitoring report on the use of derivative contracts and their impact on the solvency limit.

The company has drawn up detailed work descriptions and instructions for financial reporting. The reliability of financial reporting is supported by the principle that the company’s business accounting is always periodised and kept up to date at fair value and that the figures contained in it match the investment category ledger systems used as ledgers and the data warehouse used in reporting.

Exact calculations of the technical provisions are made each year. The calculations of the technical provisions during the year are made using pension-insurance register information and insurance technique analyses. Insurance risks are analysed using, for example, a risk assumption analysis (mortality, disability intensity), financial statements and business result analyses (insurance technique, distribution of responsibility) and, for example, when compiling statistics on contribution losses and disability pension expenditure.

In drawing up the financial statements, the payroll of the insured is an estimated amount. This is reflected in the company’s premium income and in the amount of technical provisions, but has little effect on the company’s result.

Operational risks connected with Varma’s financial reporting are charted on a regular basis. The potential impacts and likelihood of identified risks are assessed on a risk-specific basis.


In accordance with Varma’s Articles of Association, the General Meeting elects two Auditors and two Deputy Auditors for the Company. The Auditors and Deputy Auditors shall be auditors approved by the Finland Chamber of Commerce. An auditing company may also be elected to act as Auditor and Deputy Auditor.

The Auditors’ term ends at the next Annual General Meeting following their election.

Under the legislation in force concerning auditing, the Auditors’ duty is to audit Varma’s accounting records, Report of the Board of Directors, Financial Statements, Consolidated Financial Statements and governance. Auditing shall be carried out in accordance with good auditing practice.

The Auditors report on their work, observations and conclusions in the Auditors’ Report addressed to the Annual General Meeting. In addition to this, the Auditors report on their observations concerning internal control, financial reporting and other auditing measures to the Board of Directors’ Audit Committee, to the Board of Directors, to the Supervisory Board, to executive management and to the supervisory authority.

The Auditors provide the Board of Directors annually with written confirmation of their independence, required under the legislation in force. The Company’s Board of Directors assesses the independence of the Auditors each year.

According to the decision made by the Annual General Meeting on 20 March 2014, Authorised Public Accountants Petri Kettunen and Paula Pasanen served as Varma’s Auditors during the financial year 2014. Authorised Public Accountant Marcus Tötterman and Authorised Public Accountants KPMG Oy Ab served as Deputy Auditors.

Remuneration paid to the Auditors for statutory auditing in 2014 amounted to EUR 218,686. Remuneration paid to KPMG Oy Ab for expert services other than those related to auditing totalled EUR 55,043 in 2014.

Internal audit

Varma’s internal audit operates in accordance with the principles laid down in the professional internal auditing standards. It comprises independent and objective assessment, assurance and consulting activities whose purpose is to support the organisation in achieving its goals by producing assessments and development proposals concerning the status of risk management and other internal controls.

The organisational status, tasks, responsibilities and powers of the internal audit are laid down in the instructions approved by the Board of Directors. The areas to be audited are set out in an annual audit plan, which is approved by the Board of Directors after it has been heard by the Executive Group and the Audit Committee.

The audit observations are reported to the company management, the Audit Committee and the Board of Directors.

The internal audit is organised under the supervision of the CEO.

Deviations from the Finnish Corporate Governance Code

The following is a summary of the deviations from the recommendations of the Finnish Corporate Governance Code at Varma.

  • Recommendation 12 – Special order of appointment of the directors: Varma deviates from the recommendation because under the Finnish Act on Employment Pension Insurance Companies, all members of an earnings-related pension insurance company’s Board of Directors must be appointed by the Supervisory Board. The order set out in the recommendation under which more than half of the members should be appointed by the Annual General Meeting would thus be against the law.
  • Recommendation 14 – Number of independent directors: Seven of the members and two of the deputy members of Varma’s Board of Directors are also members of the executive management of Varma’s client companies. This means that the requirement concerning a majority of independent directors cannot be met; the details are given in the section Board of Directors. The exception is connected with the mutual character of Varma. In a mutual company, a client relationship also means shareholding, and the deviation from the recommendation thus compensates for the fact that under the Finnish Act on Employment Pension Insurance Companies, the Annual General Meeting does not appoint the majority of the Board of Directors in the manner referred to in Recommendation 12. Furthermore, client representation on the Board of Directors helps to ensure that Varma can provide statutory earnings-related pension security in an efficient manner.
  • Recommendations 25, 26, 29 and 32 – Number of independent committee members: Two of the three members of the Compensation and Nomination Committee presented in the section Nomination and Compensation Committee and two of the four members of the Audit Committee (in the section Audit Committee) are members of the executive management of Varma’s client companies. The grounds for the exception are the same as those concerning the safeguarding of efficient operations given in connection with Recommendation 14.