Fit for the future
2014 was a successful year for Varma. Investment returns increased to 7.1 per cent, and the value of our investments grew for the first time to over EUR 40 billion and solvency capital to over EUR 10 billion.
We acquired many new customers and improved our operating expense efficiency.
We also did well in comparison with other earnings-related pension companies, as we had the strongest return on investments of all earnings-related pension companies in 2014. We also have clearly the strongest solvency in the sector.
Varma’s strong position benefits its customers in two ways. Firstly, we have buffers against volatility in the investment markets. Secondly, strong solvency means higher client bonuses: we will pay record-high client bonuses for 2014, at EUR 117 million.
From Varma’s perspective, the economic situation is divided. Investment returns have been at a good level following the financial crisis, yet the real economy is proving to be more and more challenging. For Varma it is important that employment and earnings in the private sector develop positively. We need stronger growth and job creation in Finland.
Profitability and the outlook in the business sector is at the very least satisfactory, but at the same time, returns on fixed income investments are at a dramatically low level.
The situation is also twofold in terms of investments. Profitability and the outlook in the business sector is at the very least satisfactory, but at the same time, returns on fixed income investments have dropped to a dramatically low level. The return on government bonds is historically low, at near zero – and in some cases even negative. Fortunately Varma has a broadly diversified portfolio, and Finnish legislation does not require us to invest solely in government bonds.
The zero-rate environment is highly exceptional. In this respect, the future outlook raises some concern if the interest rate level is any indication of the level of future growth. The combination of record-low interest rates and sluggish growth is bound to have a negative impact on investment returns sooner or later.
The substantial tension and uncertainty relating to the economic situation and investment environment is undeniable. They are the result of the geopolitical situation, monetary policy and economic outlook. Fortunately Varma’s capacity to carry investment risks is exceptionally strong, thanks to the company’s strong solvency.
In future, we will focus on securing our strong solvency and we will continue to actively collaborate with our clients and customers. Our aim is also to continuously improve the quality of our pension services. Submitting a pension application is a unique situation for most people, and we want to be a good partner during this process.
All in all, Varma had a very successful year, and all Varma employees are to thank for this. Our clients also deserve our gratitude for the trust and loyalty they have shown in Varma.
President and CEO