Strong solvency benefits our customers
Varma’s strong solvency secures pensions. Thanks to its high solvency, Varma has been paying very competitive client bonuses for several years now.
In 2015, Varma’s solvency remained at a high level. At the end of 2015, solvency capital was EUR 9,956 million (10,252), or 31.4% (34.0%) of the technical provisions.
Solvency has an effect on the size of client bonuses: our strong solvency allows us to transfer higher amounts to client bonuses. In 2015, we transferred EUR 115 (117) million to client bonuses. We have been paying very competitive client bonuses for several years now.
Pension liability and risk buffers
Pensions are protected also during economic turbulence
The economic year 2015 was weak for Finland. During trying times, strong solvency offers protection against unstable capital markets.
Owing to its strong solvency, Varma is able to target better returns on pension assets. High solvency capital allows us to make higher-risk investments with a higher return potential, thus enabling higher returns on pension assets.
The higher the risk of the investments, the greater the amount of solvency capital required. Good investment returns in the long term help secure the financing of pensions.
The statutory solvency capital requirements are set so that pensions will be secured also during lean economic periods, and the solvency limit is the most important of these requirements. The limit 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 2015 was 16.8% (15.8%) of the technical provisions, and the solvency capital’s ratio to the solvency limit was 1.9 (2.2).
Solvency regulations will be amended
Regulations concerning the calculation of the solvency limit and investment diversification of pension institutions will be renewed at the start of 2017. In future all the relevant investment risks and insurance risks will be taken better into account in the calculation of solvency. At the same time, the separate regulations on technical provisions will be abolished.
The solvency and investment activities of earnings-related pension companies will also be affected by the pension reform, due to take effect at the beginning of 2017, which will change how the return requirement on pension liabilities is determined. The equity-linked provision for current and future bonuses will be raised in two steps: in 2017 it will rise from 10% to 15, and in 2018 to 20%.
This change 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 60%. Investing in equities allows better returns on the pension system in the long term, and thus mitigates the pressure to raise earnings-related pension contributions.