FINLAND - Domestic equity investments boosted Varma's return on listed equities to 9.7%, to feed into a 4.2% overall return in the first quarter of this year.

Latest figures from the mutual insurance company, which delivers pensions to almost 520,000 individuals, revealed total assets increased in the first three months of the year from €29.9bn to €30.8bn as the weighting of listed equities increased to 26%, up from 23% at the end of 2009.

Varma noted listed equities produced the best performance in the quarter, at 9.7%, which could be "largely attributed to the substantial increase in the value of the domestic equity investments", although there is not an exact figure for these holdings.

Fixed income investments meanwhile dropped from 44% of Varma's total portfolio to 40%, and an extra percentage point was allocated to hedge fund investment to increase holdings from 11% to 12% and deliver a quarterly return of 5.5%.

All of the remaining asset classes also produced a positive performance except for commodities, as the 2% allocation returned -18.1% over the three months. However, this was offset by an overall 8.6% return on the equity portfolio, including private equity and unquoted shares, while property delivered 1.3% and fixed income 2.4%. 

Matti Vuoria, chief executive and president of Varma, said it had "made it through the financial crisis well and the company's solvency and market position clearly strengthened." But he warned future challenges would include responding to problems in the real economy and changes resulting from the critical situation in business structures.

The solvency position of the fund improved by €880m to €6.897bn, equivalent to 28.2% of technical provisions or 2.8 times the required solvency limit.

The latest results, which highlighted plans to focus on Varma's online services and increasing efficiency, were published alongside the company's annual report for 2009.

This reiterated the annual return in 2009 of 14.1% and an increase in assets to €29.9bn. It also said over the year Varma had "provided major support to work carried out in Finland and to reviving the economy by making major investments in construction projects and by injecting capital in Finnish companies. We made a record amount of new real estate investments, to a total value of some €706m".

In his foreword to the annual report, Vuoria stated: "Our biggest challenges will centre around the rapidly weakened public economy and the need for structural and functional changes, particularly in the municipal sector, which require quick solutions. It is difficult to initiate a dialogue on such major structural issues, especially with the parliamentary elections nearing."

He highlighted the ongoing debate in Finland regarding an increase in retirement age, but said in addition to continuous reforms, "more intense competition is needed in improving the private sector earnings-related pension system. As for the development of the pension systems covering the public sector, the benefits of competition seem not to be fully recognised".

Vuoria argued the sustainability of the Finnish earnings-related pension scheme could be improved in a number of ways alongside higher retirement ages, such as improved solvency regulations that in turn could allow schemes to target a better investment return.

"Administrative pension costs can be alleviated and the sustainability of pension provision can be bolstered by increasing earnings-related pension companies' opportunities to compete in the efficient implementation of pension provision and in cost control in a way that benefits policyholders and the insured," he added.

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