The two largest pension insurance companies in Finland’s earnings-related pension system have finally reversed their rankings, with Varma now topping the size league, having once more beating Ilmarinen on returns in the latest quarterly period.
Varma this morning reported a 4.9% investment loss for January to September, including a €398m loss for Q3 – which was narrower that the decline reported for each of the previous two quarters.
Ilmarinen, meanwhile, revealed a steeper 8.0% loss for the nine-month period in its interim results statement, including a €1.1bn loss for the third quarter alone.
Varma said the value of investments had risen to €56.4bn by the end of September from €59.0bn at the beginning of the year, while Ilmarinen declared its investments were worth €55.8bn after the latest quarter, having started 2022 at €60.8bn.
In the last few sets of financial results, Varma has repeatedly beaten Ilmarinen on returns, now regaining the number one size position it once held among the pension insurance companies providing private-sector occupations pensions in Finland. That was before Ilmarinen expanded through its merger with pension insurer Etera at the beginning of 2018.
Varma reported a 13.5% return for private equity from January to September, a 5.6% gain for hedge funds and a 5.5% return for real estate.
Performance of the these asset classes had compensated for the 19.3% loss of listed equities, the firm said.
Varma chief investment officer Markus Aho said: “As a result of rising inflation and central banks’ interest rate hikes, market movements have been steep, as expected.”
Aho said diversification across asset classes and geographical areas as well as investments in unlisted companies had helped secure investments against the worst turmoil.
“We have temporarily reduced the weight of listed equities, and our investment allocation secures solvency,” the CIO said. But he told IPE that the company continued to have strong solvency and was not currently a limiting factor in its allocation and risk taking.
Varma’s solvency ratio slipped to 133.0 by the end of September from 139.4 at the start of the year, with solvency capital at 1.9 times the solvency limit versus 2.0 times that limit on 1 January, according to the report.
Solvency capital protected investments against market volatility, Varma explained, and enabled it to aim for higher returns by making riskier investments with a better return potential.
At Ilmarinen, equities suffered a 12.8% loss in the nine months, while fixed income investments lost 5.7% in the period, according to the report.
Real estate investments, meanwhile, gave Ilmarinen a positive return of 4.0%, but Jouko Pölönen, the firm’s chief executive officer, warned rising interest rates were also putting downward pressure on real estate valuations.
Earlier this week, Elo – the third-largest pension insurance company – reported a 4.9% loss on investments for the first three quarters of 2022, with the market value of investments dipping to €28.0bn at the end of the period from €28.3bn at the start.
Its solvency level was 122.2 as September ended, down from 126.9 on 1 January, according to the interim results.
The Q3 results from Varma, Ilmarinen and Elo show Veritas – the system’s smallest pension insurance company which reported results yesterday – to be the only one of the four to have generated a positive return between July and September, albeit just 0.5%.
Veritas also saw a decline in its solvency ratio over the nine months, though – to 124.1 from 131.9.