Varma's Interim Report 1 Jan - 30 Sep 2016

Varma’s Interim Report

1 January–30 September 2016Varma’s investment result rose strongly into the positive

25.10.2016 | Varma's Interim Report 1 January–30 September 20161

Varma’s investment result rose strongly into the positive


Market value of

investments, €

42.4 bn

Return on

investments

3.1%

Solvency capital, €

10.1 bn

Good result according to key indicators

The return on investments stood

at 3.1 per cent, and at the end of

September the value of

investments totalled EUR 42,440

million.

The good return on fixed income

investments and private equity

funds diversified the risk of listed

equity investments in the

investment portfolio.

Return on investments

25.10.2016 | Varma's Interim Report 1 January–30

September 20163

The average nominal return on investments over ten years is approx. 4.6%,

calculated in accordance with the recommendations issued by TELA.

Investments classified according to risk The return on fixed income investments was 4.2%, which is remarkable, considering the low interest rate environment. We increased our investments in emerging markets.

Among equity investments (3.2%) unlisted equities 15.4% and private equity funds 8.1% generated the highest returns.

The return on real estate investments (–0.4%) was weighed down by write-downs made in response to changes in the renovations & market and rental situation.


The modified duration for all the bonds is 3.31 Includes accrued interest2 The interest rate risk of fixed income investments has been reduced by using derivatives to shorten the

durations

1-9/2016 1-9/2015 1-12/2015 24 m

Return Return Return

MWR MWR MWR Vola-

€ mill. % € mill. % € mill. % € mill. % € mill. % % % % tility

15,139 36 394 1 13,292 33 12,199 30 12,268 30 4.2 -0.2 -0.4

Loan receivables 1,416 3 1,416 3 1,397 3 1,397 3 1,361 3 3.2 2.9 2.4

Bonds 11,944 28 11,304 27 10,565 26 8,835 22 8,757 21 5.7 -0.8 -0.9 3.2

Public bonds 5,037 12 3,767 9 4,438 11 3,150 8 2,653 6 4.1 -2.3 -2.5

Other bonds 6,908 16 7,537 18 6,127 15 5,685 14 6,105 15 6.8 0.4 0.4

Other money-market instruments and deposits 2 1,779 4 -12,325 -29 1,330 3 1,967 5 2,151 5 -0.5 0.5 0.5

16,851 40 15,603 37 16,836 42 17,329 43 18,465 45 3.2 1.3 8.8

Listed equities 13,348 31 12,099 29 13,037 32 13,530 33 14,938 36 1.5 -1.0 8.0 12.9

Private equity 2,654 6 2,654 6 2,658 7 2,658 7 2,617 6 8.1 9.1 7.8

Unlisted equities 850 2 850 2 1,141 3 1,141 3 909 2 15.4 9.0 21.2

3,708 9 3,708 9 3,838 9 3,838 9 3,906 9 -0.4 2.3 3.3

Direct real estates 3,033 7 3,033 7 3,315 8 3,315 8 3,313 8 -1.5 1.1 2.3

Real estate funds 675 2 675 2 522 1 522 1 593 1 4.8 10.2 9.9

6,741 16 7,054 17 6,448 16 6,769 17 6,991 17 2.5 3.4 3.5

Hedge funds 6,773 16 6,773 16 6,507 16 6,507 16 6,663 16 2.7 3.6 3.9 3.0

Commodities -19 0 293 1 -58 0 263 1 352 1

Other investments -12 0 -12 0 -1 0 -1 0 -24 0

42,440 100 26,759 63 40,413 100 40,134 99 41,630 101 3.1 1.1 4.2 5.3

Impact of derivatives 15,681 37 0 0 279 1 -336 -1

42,440 100 42,440 100 40,413 100 40,413 100 41,293 100

Risk positionRisk positionMarket Value Risk position

Market value

Market Value

Real estate investments

Other investments

30-September-2016 30-September-2015 31-December-2015

Total investments

Investment allocation at fair value

Market valueMarket value

Fixed-income investments 1

Equity investments

Return development since 2009: cumulative return roughly 67%, i.e. €17.4 bn

The equity markets recovered from the market upheaval early in the year: the realised financial figures

exceeded expectations


Total result by quarter


Value of investments


42 440

0

10 000

20 000

30 000

40 000

2007 2008 2009 2010 2011 2012 2013 2014 2015 9/2016

€ mill.

% Varma

Finnish

equities

European

equities US equities

Euro

government

bonds

Euro

corporate

bonds

9/2016 3.1 8.8 -3.8 7.8 6.4 6.0

2015 4.2 15.9 9.6 1.4 1.6 -0.7

Average nominal return

5 years 6.7 16.8 11.9 16.4 6.7 6.1

10 years 4.6 6.7 3.0 7.2 5.3 4.6

Since 1999 *

5.5 8.4 3.8 5.2 5.0 4.6

Average real return

5 years 5.6 15.7 10.7 15.2 5.6 5.0

10 years 3.0 5.0 1.4 5.5 3.6 2.9

Since 1999 *

3.8 6.7 2.2 3.5 3.4 3.0

* Varma, as it is today, was founded in mid-1998, so comparison data earlier than 1999 is not available.

Finnish equities = OMX Helsinki Cap Index Euro government bonds = IBOXX Eurozone EUR (Total Return)

European equities = Stoxx 600 Total Return Index EUR Euro corporate bonds = IBOXX Corporate Overall Performance Index EUR (Total Return)

US equities= S&P500 Total Return Index

Investment returns for Varma and the markets


Real return since

1 Jan 2016: 2.5%

Investments in Finland 28%, 11.5 bn €


Geographical distribution of investments


Geographical distribution of listed equities


Solvency and efficiency


Solvency capital strengthened to EUR 10.1 billion

Solvency remained at a high level, at 31 per cent


Solvency Solvency capital grew

• EUR 10,101 million

• 31.0 per cent of the

technical provisions

• 2.2 times the solvency limit


We handle pension cover cost-

effectively.

We used 75 per cent of the expense

loading included in the insurance

contributions for operating expenses.

The loading profit was EUR 26

million.

Earnings-related pension insurance

companies have agreed that the

expense loading included in

insurance contributions, determined

by the common calculation principles,

will be cut by roughly 7 per cent at

the start of 2017.

Loading profit

25.10.2016 | Varma's Interim Report

1 January–30 September 2016

15

Current issues in customer workThe processing of pension applications is now considerably faster

The sales result in 2016 was strong


17,500 new pension decisions

Electronic pension

application

• The accuracy of the information provided is

verified immediately when filling in the

pension application

• The information is transferred directly to the

pension processing system

• Over 50% of applications are received

electronically

• The development work applied

Lean methodology

Efficient processes

• More automation

New pension processing

system

17

The processing times for making pension decisions was reduced by 10 days in January–September


The customer receives a

pension decision quickly

• A decision on old-age pension is

given within a month, even within a

few days if all the information is

available.

• Varma’s processing time for

disability pension applications is

one month faster than the

competitors’.

• Earnings-related pension decisions

are given within a week.

18

60 60

46

40

47

53

2014 2015 2016

Pension application processing in days

Varma Other

25.10.2016 | Varma's Interim Report

1 January–30 September 2016

Major improvement in processing times for rehabilitation decisions


26

22

17

14

0

5

10

15

20

25

30

IV/2015 I/2016 II/2016 III/2016

Rehabilitation decision: processing time (days) by quarter

The processing times are currently 10–11 days – last year the average was 36 days

Account transfers: Varma’s TyEL premiums written in 2012–2016


Quality customer work & service have boosted sales – growth seen especially in mid-sized companies

Challenges in YEL sales – we are reinforcing our services for entrepreneurs

Responsibility


Varma’s CSR focus areas


CSR actions in 2016

Mitigating climate change

• Climate policy for investments

published in spring: targeting a 2-

degree portfolio.

• Sustainable development equity

portfolio being built.

• Use of solar energy launched in some

properties – study on the Salmisaari

office also under way.

• Ownership policy updated.

• We published our updated Code of

Conduct, insider guidelines and

sponsorship policies.

• We published more information on

transactions that must be reported to the

Financial Supervisory Authority, including

the distribution of resources used for

client companies’ workability projects.

• We are working on our first GRI report.

Increasing transparency

• We offered a trainee position to a

Somalian asylum seeker as part of the

Hanken integration programme.

• We are seeking means of supporting the

workability of entrepreneurs’ together with

Demos Helsinki.

Supporting diversity and

entrepreneurship

23 25.10.2016 | Varma's Interim Report 1 January–30 September 2016

Varma’s office was granted the Green Office logo

Varma's Interim Report 1 Jan - 30 Sep 2016

Presentations & Public Speaking