Annual Report 2014


Strong return on investments in 2014

In 2014 the return on Varma’s investments was good, at 7.1 per cent. In the broadly diversified portfolio, returns were generated consistently by the different asset classes. Share prices strengthened, and interest rates continued to fall from the already low level, which boosted interest income. Other investments also yielded a good return.

The value of Varma’s investments grew to over EUR 40 billion and solvency capital to over EUR 10 billion. Solvency strengthened to 34.0 (31.6) per cent.

Economic growth gained momentum in the U.S. but remained weak in the eurozone and was even negative in Finland. The European Central Bank held on to its stimulus policy and lowered its interest rates, while the U.S Federal Reserve withdrew its support for the markets and ended quantitative easing. It also gave indications of a moderate interest rate increase in 2015. The U.S. dollar gained clear momentum during the end of year.

Varma’s result developed strongly in the first half of the year, but fluctuated strongly in the second half. Market uncertainty was amplified by the crisis in Russia, geopolitical tension, the sharp decline in the price of oil and the markets’ momentary lack of faith in the sustainability of equity prices.

Equities generated the strongest return, and fixed-income investments, real estate and other investments also generated a strongly positive return.

Positive returns in all asset classes

The return on Varma’s investments was 7.1 (9.0) per cent. Fixed-income investments accounted for 26, equity investments for 47, real estate investments for 6 and other investments for 21 percentage units of the investment result.

Equities generated the strongest return, and fixed-income investments, real estate and other investments also generated a strongly positive return.

The average 10-year nominal return on investments was 5.5 per cent and the five-year return 6.4 per cent. The real returns were 3.5 and 4.3 per cent respectively. 

Varma’s investment activities focussed on maintaining the company’s strong solvency and broad diversification of investments, with a strong emphasis on risk management.

Varma has US-dollar-denominated investments in hedge funds, equities, corporate bonds and private equity funds. In accordance with Varma’s policy, most of the exchange rate risks have been hedged. During the year, a proportion of the currency position was unhedged, which improved the overall result as the value of the U.S. dollar increased. In terms of operations, foreign currency risks are managed as a single entity, while in the performance indicators the exchange rate impact is included in the investment returns of various asset classes.

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