Varma’s Interim Report

1 January–30 June 201615 August 2016

15 August 2016 | Varma's Interim Report 1 January–30 June 20161

Diversification of the investment portfolio mitigated risks

Market value

of investments, €

41.2 bn

Return on

investments

–0.3%

Solvency capital, €

9.1 bn

15 August 2016 | Varma's Interim Report 1 January–30 June 20162

Good return on unlisted equity, real estate and fixed income

investments Real estate and fixed income investments and private equity funds yielded good returns and diversified the risks of equity investments in Varma’s portfolio.

The return on investments was –0.3 (4.3) per cent.

The investment result was slightly negative due to the weak price development in the equity markets during the first half of the year.

At the end of June, the value of Varma’s investments stood at EUR 41,242 (41,899) million.

15 August 2016 | Varma's Interim Report 1 January–30 June 20163

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

4.6%, calculated in accordance with the recommendations issued by TELA.

1-6/2016 1-12/2015 24 mReturn Return

MWR MWR Vola-€ mill. % € mill. % % % tility

14,614 35 12,268 30 2.2 -0.4

Loan receivables 1,345 3 1,361 3 1.9 2.4

Bonds 11,238 27 8,757 21 3.0 -0.9 2.9

Public bonds 4,649 11 2,653 6 3.2 -2.5

Other bonds 6,589 16 6,105 15 2.9 0.4

Other money-market instruments and deposits 2,031 5 2,151 5 -0.4 0.5

15,266 37 18,465 45 -3.1 8.8

Listed equities 11,848 29 14,938 36 -5.5 8.0 12.6

Private equity 2,592 6 2,617 6 4.0 7.8

Unlisted equities 826 2 909 2 13.5 21.2

3,855 9 3,906 9 2.6 3.3

Direct real estates 3,154 8 3,313 8 2.6 2.3

Real estate funds 701 2 593 1 2.9 9.9

6,808 17 6,991 17 -0.8 3.5

Hedge funds 6,505 16 6,663 16 -0.6 3.9 2.9

Commodities 315 1 352 1

Other investments -13 0 -24 0

40,544 98 41,630 101 -0.3 4.2 5.2

Impact of derivatives 698 2 -336 -1

41,242 100 41,293 100

The modified duration for all the bonds is 4.11)

Includes accrued interest

Real estate investments

Other investments

Total investments

Investment allocation at fair value

30-June-2016 31-December-2015

Risk position Risk positionMarket valueMarket value

Fixed-income investments 1)

Equity investments

Investments classified according to risk

15 August 2016 | Varma's Interim Report 1 January–30 June 20164

Return development since 2009, cumulative return roughly 62.0%, i.e. €16 bn

15 August 2016 | Varma's Interim Report 1 January–30 June 20165

The capital markets recovered in Q2 from the major market plummet of the first quarter

90

100

110

120

130

140

150

160

170

Total result by quarter

15 August 2016 | Varma's Interim Report 1 January–30 June 20166

Returns in Q2 were positive

Market value of investments

15 August 2016 | Varma's Interim Report 1 January–30 June 20167

Investment allocation

15 August 2016 | Varma's Interim Report 1 January–30 June 20168

Investment returns for Varma and the markets

15 August 2016 | Varma's Interim Report 1 January–30 June 20169

Q2 nominal return 1.0%

% Varma

Finnish

equities

European

equities US equities

Euro

government

bonds

Euro

corporate

bonds

6/2016 -0.3 -1.0 -7.8 3.8 5.7 4.1

2015 4.2 15.9 9.6 1.4 1.6 -0.7

Average nominal return

5 years 4.8 9.0 6.9 12.1 7.3 5.4

10 years 4.6 6.2 3.3 7.4 5.5 4.7

Since 1999 *

5.4 7.9 3.6 5.1 5.1 4.6

Average real return

5 years 3.6 7.9 5.8 10.9 6.2 4.3

10 years 2.9 4.5 1.6 5.7 3.8 3.0

Since 1999 *

3.7 6.2 2.0 3.4 3.4 2.9

* 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

Solvency and efficiency

15 August 2016 | Varma's Interim Report 1 January–30 June 201610

Solvency capital

Solvency remained high, at 28.3%

15 August 2016 | Varma's Interim Report 1 January–30 June 201611

Solvency

Solvency capital was strong

• EUR 9,136 (10,956) million

• 28.3 (35.3) per cent of the

technical provisions

• 2.0 (2.1) times the solvency

limit

15 August 2016 | Varma's Interim Report 1 January–30 June 201612

Loading profit

• 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 17 (17)

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.

15 August 2016 | Varma's Interim Report 1 January–30 June 201613

Electronic pension application is the fastest The processing of

pensions in now digital

and quick

• In the first half of the year,

a total of 11,374 new

pension decisions were

made, which is 4% more

than in the corresponding

period last year.

• Varma’s pension

processing times have

speeded up considerably

and are below the sector

average.

• Varma paid out EUR 2.4*

billion in pensions to

337,260 people.

15 August 2016 | Varma's Interim Report 1 January–30 June 201614

Varma.fi = applications received electronically

Tefi = scanned application received via the työeläke.fi website

Scan = a scanned paper application received by Varma

KELA = a scanned paper application received by KELA that is forwarded to Varma

35

36

37

38

39

40

41

42

43

44

45

Varma.fi Tefi Scan Kela

days

*before the reduction of received

clearing of pay-as-you-go (PAYG)

pensions

Pension application process

15 August 2016 | Varma's Interim Report 1 January–30 June 201615

Client

Co-operation

partner

Varma

Information

about receipt of

application and

follow-up

Pension

application,

incl.

attachments

Old-age, survivors’,

part-time pension

Determination of

pension entitlement

Physician’s

statement

Favourable decision

Missing and

additional

info

Pension

decision

Calculation of

pension and

decision-making

Monthly

payment of

pension

Payment of

pension

Wage data and employment

termination date from

employer

Employer’s description

OHS’s statement

Further clarifications and info

from other pension

companies

Disability pension:

Pension adjudication

specialist’s assessment

of workability and

groundwork for

physician

Consultation with Kela

Initial

application

processing and

info requests

Electronic

application

Paper

application

Pension

decision

Adverse

decision by

pension

adjudication

specialist

The employer and the life insurance company (for jointly agreed

customers) will be informed of the decision.

Key figures

15 August 2016 | Varma's Interim Report 1 January–30 June 201616

6/2016 6/2015 2015

Premiums written, € million 2,324 2,265 4,576

Pensions paid, € million ¹) 2,680 2,579 5,183

TyEL-insured 489,970 485,200 486,960

YEL insurance policies 36,450 38,100 37,380

Pensioners 337,260 334,340 337,100

Investments, € million 41,242 41,899 41,293

Return on investment, € million -143 1,731 1,679

Return on investment, % -0.3 4.3 4.2

Total result, € million -733 700 -164

Loading profit, € million 17 17 36

Operating expenses as % of loading component 75 75 74

Technical provisions, € million 33,392 31,860 31,866

Solvency capital, € million 9,136 10,956 9,956

Solvency capital/technical provisions 2) 28.3 35.3 31.4

Solvency capital/solvency limit 2.0 2.1 1.9

Parent company staff 538 552 534

Responsibility

15 August 2016 | Varma's Interim Report 1 January–30 June 201617

15 August 2016 | Varma's Interim Report 1 January–30 June 201618

Vision.

CSR is part of Varma’s daily

operations. We actively

communicate what CSR means

to us and how our responsible

operations show in society. We

continuously develop our

responsible ways of operating.

Varma's CSR focus areas

15 August 2016 | Varma's Interim Report 1 January–30 June 201619

Responsible investment

• In May, Varma published a climate

policy that steers its investments. It

was the first Finnish earnings-related

pension company to do so.

• Varma joined the Montréal Carbon

Pledge initiative, in which investors

commit to measure and publicly

disclose the carbon footprint of their

listed equity investments annually.

• Varma also signed the CDP (formerly

Carbon Disclosure Project), which

compiles data on companies’

greenhouse gas emissions and other

climate-change-related data.

Mitigating climate change is one of Varma’s CSR

targets

15 August 2016 | Varma's Interim Report 1 January–30 June 201621

Varma’s goal is to reduce the carbon

footprint of its investments by 2020:

• by 25% in listed equity investments

• by 15% in listed corporate bond

investments and

• by 15% in real estate investments

In the longer term, Varma

will focus its investments on

investees that are low

carbon or which have a

climate strategy that aims

for a low-carbon society.

Current issues

15 August 2016 | Varma's Interim Report 1 January–30 June 201622

• Economic and political uncertainty

continue – attention shifts from Brexit to

US presidential election

• Global economic growth will continue, but

at a slower pace than during the years

immediately following the financial crisis

• Monetary policy will continue to focus on

stimulus measures – nominal interest rates

in the eurozone will remain exceptionally

low

• Varma’s strong solvency and investment

risk management secure pensions in

unstable markets

Current issues

15 August 2016 | Varma's Interim Report 1 January–30 June 201623