Varma

Good returns on volatile equity markets

Equity investments performed the best of all asset classes. They accounted for 45% (41%) of Varma’s investments and yielded a return of 8.8% (9.1%).

Equity investments consisted of listed equities (36% of all investments), private equity investments (6%) and unlisted equities (2%). Equity investments have had a very strong seven-year period, with an average return of 12.6%.

Return on equity investments 2009–2015

Share prices rose sharply in the first quarter, especially in Europe, when the European central bank launched its massive stimulus measures. Over the course of the spring, the equity markets were negatively influenced by concern over Greece’s ability to pay off its maturing loans. Equity markets hit bottom in the autumn, as fears over the sustainability of China’s economic growth spread to the global equity markets. At the end of the year, the equity markets again recovered as the economic indicators in the US improved and the ECB signalled its commitment to further stimulus measures.

Despite the strong market fluctuations, the return on listed equities was good, at 8.0%. Finnish equities yielded the best return, at 19.4%. The equities of Sampo Corporation, Varma’s largest domestic holding, performed very strongly, at 27.2%.

Finnish equities accounted for 37.6% of Varma’s listed equities. European equities accounted for 25.5%, U.S. equities for 23.6% and other areas and global markets for 13.2%. To counterbalance the high share of domestic equities, Varma has broadly diversified its portfolio outside of Finland, not only in international equities, but also in private equity investments, hedge funds and corporate bonds.

However, US equities yielded a low return and emerging market equities a clearly negative return. Concerns over China’s economic growth and the strong decline in energy prices depressed share prices in many emerging countries.

Allocation of investments in equities

Good year for private equity investments and unlisted equities

Private equity investments and unlisted equities also generated good returns. Private equity investments yielded a return of 7.8% (13.5%) and unlisted equities 21.2% (19.7%).

About half of Varma’s private equity investments are invested in the U.S., and the rest mainly in Europe and the Nordic countries. European private equity funds performed very strongly in both the traditional buyout funds and infrastructure funds. Following a long period of good performance, the return generated by the portfolio’s focal area, the U.S., remained modest, influenced in part by poor stock market development.

Throughout the year, private equity funds exploited the strong demand in the markets and liquidated large amounts of their investments. The number of new investments was clearly smaller.

The strong performance of co-investments made with private equity funds and the good result of equity-type real estate investments contributed to the very good return on unlisted equities. Real estate companies paid out good dividends, their value strengthened and shares were sold at a profit. During the year, Varma divested its entire holding in SATO Corporation and half of its holding in Certeum Oy.

Private equities and unlisted equities represent a long-term asset class, and their long-term return has been very good.

15 largest equity investments, holding
Varma's
holding of
€ mill.shares, %
Sampo plc1,6726.35
Nokia Corporation5342.02
Wärtsilä Corporation4345.20
Nordea Bank AB2960.72
VVO-group plc26216.98
KONE Corporation2371.25
Elisa Corporation2334.01
Nokian Tyres plc1743.91
Stora Enso Oyj1301.99
Fortum Corporation1271.02
Metso Corporation1254.02
UPM-Kymmene Corporation1221.33
Amer Sports Corporation1203.75
Metsä Board Corporation1184.85
Sponda Plc11410.27

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The year in brief

In 2015, Varma’s return on investments stood at 4.2 per cent. The value of investments increased to EUR 41.3 billion. Premiums written increased clearly, and operating expense efficiency also showed positive development. Solvency capital was strong at EUR 10.0 billion.

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President & CEO review

2015 was a good year for Varma, and we succeeded well according to all key indicators: we maintained our strong solvency position, our premium income increased, we processed pension applications faster than before and our operational efficiency is at a competitive level.

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Lower earnings-related pension contributions for customers

Varma is a solvent company. That means the best client bonuses in the sector and lower pension contributions for our customers. Our modern digital services provide our customers with a comprehensive set of tools that enable them to take care of their pension matters easily.

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Varma for entrepreneurs

Varma is a solvent company and thus a safe choice. Varma’s extensive services, provided through various channels, make attending to insurance matters easy.

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Pension cover

The number of pensioners and the euro amount of pensions paid is constantly rising at Varma. Our task is to pay pensions correctly and on time to an increasing number of pensioners.

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Workability and good working life

Workability management promotes companies’ competitiveness and productivity and the societal goal of longer careers. Our workability services improve employee well-being and working life at our client companies.

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Varma’s targets and strategy

Varma's core task is to secure pensions. Our main goals of strong solvency, good development in premiums written, high quality pension services and efficient operations, also stem from this.

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Operating environment

The economic year 2015 ended in a climate of turbulence. Uncertainty in the global economy is again on the rise.

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Solvency

Varma’s strong solvency secures pensions. Thanks to its high solvency, Varma has been paying very competitive client bonuses for several years now.

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Fixed income investments

The return on fixed-income investments remained slightly negative, at -0.4 per cent. They accounted for 30 (32) per cent of investments and had a market value of EUR 12.3 (12.8) billion.

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Equity investments

Equity investments performed the best of all asset classes. They accounted for 45 (41) per cent of Varma’s investments and yielded a return of 8.8 (9.1) per cent.

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Real estate investments

Varma’s real estate investment portfolio amounted to EUR 3.9 (3.8) billion at the end of 2015, and the total return stood at 3.3 (3.8) per cent.

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Other investments

Other investments accounted for 17 (20) per cent of Varma’s portfolio.

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Varma’s investment principles

With EUR 41.3 billion in investment assets, Varma is Finland’s largest private investor. We invest the assets to secure present and future pensions.

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Targets and measures

On the basis of the materiality assessment, we defined Varma’s CSR targets, indicators and measures.

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Personnel

Varma’s success is based on competent personnel efficiently handling our customers’ pension cover. Customer focus is at the core of Varma’s expert work and operational development. Service that is appreciated by our customers is the result of broad competence and co-operation.

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Responsible investment

Responsibility is an integral part of our investment operations and ownership practices. In 2015, we looked into the responsibility of our hedge funds and decided to determine the carbon footprint of our investments.