FINLAND - The €26.9bn Varma Mutual Insurance Company has reported a loss of around €1.7bn in the third quarter of 2008, following continued poor investment returns.
Figures from the pension fund showed over the first nine months of 2008 the return on investments was -9.1%, and in the third quarter alone the fund reported an overall investment yield of -5.4%.
The total value of its assets fell from €28.6bn at the end of June 2008 to €26.87bn three months later, as the fund claimed the biggest fall in investment returns occurred in September. (See earlier IPE article: Finnish funds report negative returns in H1)
Risto Murto, chief investment officer at Varma, said the figures showed "the outbreak of the international financial crisis has left its mark on the entire investment environment".
Varma's allocation to equities was the worst performing asset over the year so far, as it generated a negative return of -22.6%, although within this category listed equities produced the lowest negative return of -25.8%, while private equity and unlisted equity investments yielded -1.2% and -1.4% respectively.
Hedge fund investments, which accounted for 14.5% of assets, also performed badly with a negative return between January to September of -11.6%, which the fund blamed on "a consequence of the fall in equity markets and of the risk premiums in corporate loans".
Varma's fixed income allocation fared slightly better with an overall return of 1.1%, however the fund's 13.3% allocation to real estate returned a positive 4.3%, with the best result of 6% produced by direct real estate investments, as allocations to real estate investment funds lowered the overall return with its yield of -7.7%.
The pension fund's overall return was -9.1% for the nine months to 30 September 2008, which in turn affected Varma's solvency capital as it fell from 23.1% of technical provisions at the end of June 2008, to 15.4% in September.
Varma confirmed the value of its solvency capital - which acts as a risk buffer for investment operations - fell from €5.4bn to €3.6bn over the third quarter, although it claimed the fund is still 1.5 times the legal solvency requirements.
In addition, it said if the government's temporary measures to make the solvency requirements of pension firms more flexible are implemented, this "would produce a big improvement in Varma's solvency position". (See earlier IPE article: Ilmarinen falls 9.4% as Finland acts on pensions solvency)
It claimed on the basis of the provisions outlined in the Bill, Varma's relative solvency would have doubled from 1.5 times to 3 times the solvency limit as of the end of September.
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