Varma Annual Report 2006


Download Varma Annual Report 2006


Preview text

Annual Report 2006

Annual report 2006
The year 2006 in brief ......................................................... 4 CEO’s review..................................................................... 6 Good signs from results of pension reform................................. 8 New act brings new insurance services online............................ 10 Promoting occupational well-being is financially worthwhile .......... 14 Better services for the insured ............................................. 16 A colourful and productive year for investments......................... 20 Competent personnel does good work..................................... 26 Corporate governance........................................................ 28 Supervisory Board ............................................................. 31 Board of Directors ............................................................ 32 Executive Group ............................................................... 36 Key terminology................................................................ 40 Contact information .......................................................... 42

Annual General Meeting
Varma Mutual Pension Insurance Company’s Annual General Meeting will be held on 22 March 2007 at 10 a.m., at the company’s headquarters at Annankatu 18, Helsinki.
Annual report and other publications
Varma’s annual report is published in Finnish, Swedish and English.
The corporate responsibility report is published every second year and next time in spring 2008. The report is published in Finnish and Swedish.
All of Varma’s publications can be ordered at www.varma.fi.

Varma Annual Report 2006



Varma secures pensions

Varma Mutual Pension Insurance Company is the largest earnings-related pension insurer and investor in Finland. The company is responsible for the statutory earnings-related pension cover of about 760,000 people. Premiums written totalled €3.0 billion in 2006 and pension payments stood at €2.9 billion. The value of the company’s investment assets stood at €26.9 billion at the end of 2006.

Key figures
Premiums written, € mill. Pension payments to pensioners, € mill. 1) Technical provisions, € mill. Solvency capital, € mill. Solvency capital/technical provisions, % 2) Solvency capital/ solvency limit Investment portfolio, € mill. Investment income, € mill. Return on invested capital, % Transfer to client bonuses, € million
% of TEL payroll TEL policies 31 Dec. TEL insured 31 Dec. YEL policies 31 Dec. Pensioners 31 Dec. Personnel 31 Dec.

2006
2,983 2,886 23,774 6,666
32.1 2.1
26,858 2,330 9.4 78 0.6
25,200 426,000
37,400 296,000
667

2005
2,764 2,703 21,824 5,599
29.2 2.4
24,621 2,499 11.6 84 0.7
25,200 409,000
36,700 293,000
670

Varma’s core function
Our operations are based on employment in Finland and developing the earnings-related
pension scheme

We handle pensions correctly and on time, and promote
well-being at work

Varma secures pensions

We invest pension assets profitably and securely

We take care of our customers’ earnings-related pension provision
efficiently and competitively

1) Before the reduction of received clearing of pay-as-you-go (PAYG) pensions.
2) Ratio calculated as a percentage of technical provisions used in calculating the solvency limit.



THE YEAR 2006 IN BRIEF

The year 2006 in brief

Insured

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0
02 03 04 05 06

YEL TEL

Pensioners

300,000

250,000

200,000

150,000

100,000

50,000

0
02 03 04 05 06
YEL TEL

Premiums written € mill.
3,000
2,500
2,000
1,500
1,000
500
0
02 03 04 05 06
YEL TEL

Varma’s financial performance continued to develop strongly in 2006, a year of fluctuation that ended with a good investment return of 9.4%: Varma’s leading market position was strengthened by success in client transfers. The year was characterised by the preparations for the coming of the new Employees Pensions Act (TyEL).

Varma’s total result amounted to €1.1 (2005:1.7) billion thanks to the good investment returns. The return on investments calculated at fair value was 9.4% (11.6%) and the market value of the investments €26.9 (24.6) billion.
The investment portfolio was increased in particular by the rise in the value of equity investments. The return was also improved by the fact that equities and hedge funds accounted for more of the investments and fixedinterest investments for less.
The company’s solvency rose to €6,666 (5,599) million with 32.1 (29.2)% of technical provisions based on solvency requirements.
The operating cost efficiency was extremely good; the loading profit stood at €29 million.

A transfer of €78 (84) million was made to the provision for current bonuses, about 3.5% of the employers’ TEL contribution.
Number of old-age pension decisions return to normal
Pension payments totalling €2.9 billion were made i.e. 7% more than in the previous year. There were about 296,000 pensioners i.e. 1.2% more than one year earlier.
The number of old-age pension decisions dropped by 11%, which meant in practice a return to normal. In 2005 three age-groups exceptionally reached the lower age limit for the old-age pension, which momentarily increased the number of decisions.

Market leadership strengthened
Varma strengthened its market position again as the biggest earningsrelated pension insurer in Finland. Premiums written went up by 8% to €3.0 billion. The number of insured employees and entrepreneurs rose by 4% to 463,000. Varma’s result of €15 million in account transfers was the best in the sector.

Ready for new competition
In 2006 Varma made preparations for the coming of the new Employees Pensions Act (TyEL) and the change it will cause in the competitive environment among earnings-related pension companies.
Online services in particular and their availability were improved and information systems were developed. A web service (Pesti) specifically for

“Online services and their availability were improved.”

THE YEAR 2006 IN BRIEF



temporary employees was constructed.
Start on new office building and Good Work campaign
Varma started construction of a new office building at Salmisaari in Helsinki. At the same time it was confirmed that

some of the company’s present office space in Annankatu will be let to the European Chemicals Agency in 2007.
In autumn 2006 Varma began the Good Work campaign, through which it wants to emphasise the importance of work done in Finland for the success of the whole country.

Balance sheet at fair value (parent company) € million

Assets Investments Receivables Fixtures
Liabilities Capital and reserves Valuation differences Provision for future bonuses Items included in solvency capital

2006 26,859
693 5
27,557
76 3,604 3,008 6,688

2005 24,621
366 5
24,992
66 2,903 2,640 5,610

Provision for current bonuses

77

85

Equalisation provision Technical provisions Technical provisions excluding provision for current and future bonuses Other liabilities

910 19,778
20,689 102
27,557

Income statement at fair value (parent company)

€ million

2006

947 18,152
19,099 198
24,992
2005

Premiums written Claims paid Change in technical provisions Net investment income Total operating expenses Other expenses Taxes

2,983 -2,556 -1,542 2,344
-90 -14
-4

2,764 –2,401 -1,096 2,514
–84 –12
–3

Total result*

1,121

1,681

*Profit at fair value before change in provision for current and future bonuses and equalisation provision, used mainly to strengthen solvency.

Pensions paid € mill.
3,000
2,500
2,000
1,500
1,000
500
0
02 03 04 05 06
YEL TEL
Investment portfolio € mill.
28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000
8,000 6,000 4,000 2,000
0
02 03 04 05 06
Loans Bonds Other money-market instruments and deposits Shares and participations Real estate
Solvency capital € mill.
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
02 03 04 05 06
Provision for future bonuses Valuation difference Accumulated appropriations Capital and reserves



CTOEOIM´ISTURSEJVOIEHWTAJAN KATSAUS

Varma makes strong progress

The year 2006 was successful for Varma both operationally and in terms of the results. The company’s investment performance was quite good, and we achieved our goals in client acquisition and the insurance business. At the same time we improved our operating cost-efficiency and made our operations more efficient. The company made decisions regarding all types of pensions quicker than the average in the field.

Varma prepared itself for the major reforms concerning the earnings-related pension sector during the year under review. With the reform of the earnings-related pension legislation, from the beginning of 2007 both short-term employment and employment with private households as employers can be insured at Varma. We have prepared ourselves carefully for these new opportunities. We want to develop our services so that they are within easy reach of policyholders. Our aim is for our clients to feel that our services are good and efficient.
The new cover and solvency provisions concerning investment by earnings-related pension companies will provide more opportunities to improve the return on our investments. We have also made preparations to increase the transparency of our operations.
Opportunities and challenges in operating environment
Varma’s success with its investments in 2006 was quite good. At fair value the return on the investments was 9.4% and without inflation the real return was 7.0%. The investment markets have performed well for four years and the average five-year return on Varma’s investments (2002–2006) is 8.0%.

Equities now account for a greater part of our investment portfolio. At the same time the risk level of our investments has gone up, which is why we have been working resolutely to develop the management of investment risks at our company.
Prospects for the international economy are still quite propitious, and companies are reporting good results. However, economic growth is strongest outside Europe, which will further increase production’s sensitivity to interruption in Finland.
Varma will for its part be endeavouring to strengthen the competitiveness of Finland as a marketplace. We are participating in many ways in developing the Finnish capital and investment market, and we want to continue this in the future as well. With the reform to investment in the earnings-related pension scheme we have been able to increase and diversify our investments in Finnish companies.
Debate about pension provision
Pensions are a topic of debate among Finns, which is a good thing. The extensive reforms to the earnings-related pension scheme have proved to be very efficient and our system also stands up well to international comparison.

At the same the as the transparency of our pension scheme must be increased, the sector must be ready to continue reforms and earnings-related pension companies must make their operations more efficient. The best means of achieving this is to increase inter-company competition, which can be done and promoted in many ways without jeopardising the level of pension provision and pension services.
I would like to thank the personnel at Varma for their fine efforts during 2006 and our clients for the confidence they have shown in the company.
Matti Vuoria President and CEO

CEO´S REVIEW



“With the reform to investment in the earnings-related pension scheme we have been able to increase and diversify our investments in Finnish companies.”



THE EARNINGS-RELATED PENSION SCHEME

Good signs from results of pension reform

The incentives in the pension reform seem to be having a good effect: employment among the aged is on the increase.

A pension reform for the private sectors aimed at protecting the financing of the pension provision by extending working careers and increasing the incentives built in the pension scheme came into effect at the beginning of 2005. It is now two years since the reform, so some cautious observations about its success can be made.
The reform kept all the basic principles of the earnings-related pension provision. The statutory earningsrelated pension is an essential part of Finnish social security, and it is based on an employment relationship or entrepreneurial activities. The earningsrelated pension is determined more clearly than previously on earnings; there is no pension ceiling.
Earnings-related pensions are the responsibility jointly of the employer and employee. Earnings-related pensions and the development of a pension scheme are agreed on a tripartite basis, in cooperation with employee and employer organisations.

the reform to retire flexibly has not caused a stampede to retire. Instead of the earlier 65 years of age, it is now possible to retire flexibly between the ages of 63 and 68. At the end of 2005 Varma had 4,753 insured 63–64-yearolds who were working. Of these 1,983 applied for the old-age pension during 2006.
It would seem that the employees who passed by their first possible retirement age consider continuing to do work as something to be respected and hoped for.
Employment among the aged has improved rapidly, which may be a sign that the incentives in the reform are working. In addition to this improvement, an increasing number of pensioners are in gainful employment, at least periodically.
The increase in the euro amounts of pensions that have started remained strong. The average old-age pension starting at Varma in 2006 was about €1,400 a month.

The growth in the disability pension applications slowed down clearly in 2006. However, the number of those who were taking part in vocational rehabilitation was still rising.
Varma has developed cooperation with its client companies in promoting working capacity and rehabilitation planning, and this has increased the number of applications for rehabilitation as well as the appropriateness of the applications.
The positive progress from the pension and rehabilitation reforms is connected with the good economic situation. In addition to economic incentives, changes in attitude are crucial for achieving the targets of the earnings-related pension reform. In the Good Work campaign that started in 2006 Varma wants to emphasise the importance of Finnish work in a positive sense, as an important part of life — from society’s perspective as well as the individual’s.

Employment of aged on the rise

Vocational rehabilitation cuts pension costs

The pension reform made major amendments even in international terms, such as the introduction of the life expectancy factor and the change in the accumulation period of the pension to cover the entire working career.
So far the opportunity brought by

Thanks to the rehabilitation reform vocational rehabilitation became a statutory right for people whose working capacity is at risk. The aim of vocational rehabilitation is for those who have been rehabilitated to continue in working life. Successful vocational rehabilitation cuts pension costs.

“Changes in attitude will decide whether the aims of the pension reform are achieved.”

THE EARNINGS-RELATED PENSION SCHEME



Reforms change the earnings-related pension sector
The reforms that came into effect in 2007 will change the competitive environment of earnings-related pension companies and the regulations concerning investment activities.
Simpler earnings-related pension provision
The pension acts applying to wage and salary earners in private sectors will be combined in 2007 into one earnings-related pensions act i.e. the Employees Pensions Act (TyEL), replacing the former Employees Pensions Act (TEL), the Temporary Employees Pensions Act (LEL) and the Pension Act for Performing Artists and Certain Groups of Individuals (TaEL).
The reform will cause employers fewer problems and difficulties with pension provision. The length of the employment relationship and the area of activity will no longer be of significance; the employer will be able to concentrate the earnings-related pension provision for employees in all the private sectors at Varma. An employer providing temporary employment, e.g. a household, can insure its employees through Varma’s Pesti online web service.
Concentrating the insurances on one earnings-related company will reduce the client’s expenses and facilitate work routines.
Investment reform improves prospects of better return
The investment assets at Varma’s disposal are the policyowners’ and the insured’s property, invested productively in order to safeguard the pensions. The pension companies’ investment activities are regulated by the regulations on margins and solvency, monitored by the Insurance Supervisory Authority.
The reform to the investment regulations, which came into effect at the beginning of 2007, will improve Varma’s chances of achieving a better return on the pension assets. The reform will provide the scope for increasing the proportion of equity investments.
Increasing pension investors’ scope for achieving a higher return on pension assets will safeguard pensions and alleviate the rise in pension contributions.

Employment rate of the aged

in Finland 2003-2006

%

50 45 40 35 30 25 20 15 10
5 0 60 61 62 63 64 65 66 67 y.

2003 2004 2005 Source: Statistics Finland

2006

Proportion of those who took up

earnings-related pension compared

with insured, entire private

sector

%

90 80 70 60 50 40 30 20 10
0 60 61 62 63 64 65 y. 2004 2005 2006 Source: Finnish Centre for Pensions

Proportion of those who took

up old-age pension compared

with those at work,

insured with Varma

%

60 61 62 63 64 2004 2005 2006 *Age at beginning of year

80 70 60 50 40 30 20 10
0 65 y.*

10

CLIENT AND INSURANCE SERVICES

Tiina Metsikkö, Kaleva Travel’s expert in human resources (left), and Terhi Utriainen, H.R. Director, handle their insurance matters with Varma account manager Kirsti Keravuori (right).

Wide-ranging services in earnings-related pension provision
Varma offers its customers the following pension insurance services: • basic services (e.g. insurance and pension services, vocational
rehabilitation) • additional services (e.g. insurance contribution estimates and
calculations, training and guidance related to well-being at work and to social security while working abroad) • customer-specific services (e.g. specially tailored and additional services, specific service teams with specialised knowledge of a customer’s line of business) Varma’s headquarters are located in the centre of Helsinki, but the company’s network of account managers covers the whole country. Varma insurance is also sold by If and Nordea. Applications for the TyEL (employee) and YEL (entrepreneur) cover can be completed online on Varma’s website.

Preparing to load PDF file. please wait...

0 of 0
100%
Varma Annual Report 2006