Varma’s interim result for January–September 2020
Varma’s investment returns continued to recover in the third quarter from the abrupt fall in share prices caused by the coronavirus crisis early in the year. The market value of the investments increased by EUR 1.5 billion compared to the situation at the end of June and totalled EUR 46.8 billion at the end of September. According to President and CEO Risto Murto, an issue that is even more critical for the pension system than realised returns is the development of employment.
The recovery of Varma’s investment returns that began in the second quarter of the year continued in the July–September period. The market value of the investments increased by EUR 1.5 billion, i.e. 3.3 percent, compared to the second quarter of the year and stood at EUR 46.8 (47.4) billion. The return on investments was -2.6 (8.8) percent in January–September, whereas in the first six months of the year, it was -5.7 percent.
“It has been a very contradictory year for pension investors. The real economy and societies around the world are in a deep crisis because of the coronavirus, but the development on the investment markets has been moderate. This is also reflected in Varma’s investment returns. Right now, the most critical issues for the pension system are Finland’s economic growth and the development of employment, not realised investment returns,” says Varma’s President and CEO Risto Murto.
Varma’s solvency capital, which serves as a risk buffer for investment operations, remained at a strong level. Solvency capital increased in the third quarter by EUR 0.9 billion compared to the situation at the end of June and stood at EUR 9.7 (11.6 on 1 Jan) billion. The solvency ratio was 125.7 percent (130.8 percent on 1 Jan).
Real estate investments generated a positive return
Varma’s investment returns continued to recover in the third quarter of the year, but returns in January–September were nevertheless negative. Listed equities and the slow recovery of hedge fund investments contributed the most to the negative return.
“We increased the equity weight of our investments slightly from the situation at the end of June closer to the normal level of recent years. The U.S. equity market and the Nasdaq Helsinki both did well, and the returns on the corporate bond market increased on the heels of the equity market,” says Varma’s Chief Investment Officer, Reima Rytsölä.
Of Varma’s investments, real estate investments generated the strongest returns, at 1.2 (2.6) percent. Their returns were weighed down by an impairment of EUR 19 million recorded in the third quarter, as well as the payment term arrangements and rent reliefs granted to business premises and hotel tenants due to the coronavirus crisis. The return on equity investments improved from the situation at the end of June, but were still negative, at -3.2 (16.3) percent. Listed equities generated a return of -4.3 (18.0) percent, and fixed income investments 0.0 (4.2) percent. The return on other investments was -6.4 (3.3) percent, of which hedge funds accounted for -5.4 (3.6) percent.
“Companies’ earnings power for the rest of the year will be affected by the extent to which measures to contain the spread of the coronavirus will affect economic activity and, above all, consumer demand. Even with the central banks’ and governments’ stimulus, the investment market is not completely immune to the spread of the coronavirus. The outcome of the U.S. presidential elections will also affect sentiment in the investment markets in the near future,” Rytsölä points out.
Coronavirus poses a serious risk to the domestic service sector
In the third quarter, the situation of companies and entrepreneurs improved from the corona crash earlier in the year. Fewer companies terminated their business operations compared to last year, and entrepreneurs made less changes to their confirmed income under YEL insurance than they did in the spring. The TyEL insurance payroll also increased to the level of the third quarter of last year following the drop in the spring.
“The worst scenarios for Varma’s client companies did not come to pass during the year. Unfortunately, the crisis has dragged on particularly for the travel and restaurant sectors, and winter will be challenging. Coronavirus poses a serious risk to the domestic service sector,” stresses Murto.
Of the YEL and TyEL insurance contributions that Varma’s customers deferred due to the pandemic, 93 and 79 percent respectively had been paid by the end of September. Customers were given the option of deferring their TyEL and YEL insurance contributions falling due in March–June by 1–3 months due to the pandemic, and the payment of deferred contributions began in the summer.
Varma gained a total of EUR 136 (104) million in new premiums written during the period under review. This includes the net impact of new sales and premiums written transferred from other pension institutions.
Varma in PRI Leaders’ Group for the second time
In an international assessment, the UN-supported Principles for Responsible Investment (PRI) included Varma in the PRI Leaders’ Group for the second time for its responsible investment work. This year, the PRI compared investors in climate reporting, and according to the assessment, Varma has excellent climate reporting practices.
Varma has developed its equity portfolio that invests in sustainable companies to align it more closely with Varma’s climate-related targets and to promote the UN’s sustainable development goals. Climate change mitigation and responsible consumption are among the promoted themes. The targeted size of the portfolio in the long term is EUR 500–1,000 million.
At the end of September, 553,000 (542,000 on 1 Jan) employees and entrepreneurs, as well as 343,000 (344,000 on 1 Jan) pensioners were insured by Varma.
Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 900,000 people in the private sector. Varma’s premiums written totalled EUR 5.3 billion in 2019 and pension payments stood at EUR 5.9 billion. Varma’s investment portfolio amounted to EUR 46.8 billion at the end of September 2020.
Further information:
Katri Viippola, Senior Vice President, HR, Communications and Corporate Social Responsibility, tel. +358 400 129 500 or katri.viippola(at)varma.fi
Suvi Vesterinen, Communications Manager, tel. +358 40 555 8029 or suvi.p.vesterinen(at)varma.fi
Interim report presentation (pdf)
Interim report 1 January – 30 September 2020 (pdf)