Pension companies’ risk-taking ability at lowest level in years

EUR 6 billion - one third - of working capital evaporates in one year; solvency still “fairly good”

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Investments made by Finnish pension companies have generated massive losses in the past year, but the risk-taking capacity of companies that manage Finnish pension funds have declined even more.
      Pension companies have found that their ability to withstand market fluctuations, such as further declines in share prices, has fallen rapidly.
     
The Insurance Supervisory Authority is publishing its newest calculations on capital adequacy today, Monday. According to the figures, pension companies have fallen in one year from a good degree of solvency to a “fairly good” level. The differences are great; the situation of some companies is described as “satisfactory at least”.
      The Insurance Supervisory Authority does not comment on the situation of individual companies, but the “satisfactory at least” is believed to apply to pension insurers Eläke-Tapiola and Eläke-Fennia.
     
Capital adequacy has declined because the difference between the capital holdings of the pension companies and the pension payout obligations is one third weaker than it was a year ago. Six billion euros have evaporated from the pension companies’ working capital, mainly as a result of lower share prices.
      The pension companies, and the Insurance Supervisory Authority insist that the situation is under control, and that all companies are above the legal minimum for capital adequacy.
     
On the other hand, none of the large pension companies are in the “target zone” for capital adequacy.
      Another measure of the risk-taking capacity of pension funds, the degree of capital adequacy, has fallen sharply. A year ago it was at 34 per cent, but at the end of June this year, it was just 21 per cent.
      The figure is the weakest in at least four years, which is the entire time that the Insurance Supervisory Authority has kept comparable capital adequacy figures.
     The capital adequacy of pension insurance companies would be weaker still, if their requirements for output had not been reduced by 1.45 percentage points at the beginning of July.
     
Director-General Hely Salomaa of the Insurance Supervisory Authority says that the impact of the real economy on the investment market is now decisive.
     “A round of talks with all work pension companies was held at the beginning of the summer. The development of the market is usually a matter for concern, over how long we will go down”, Salomaa says.
     She says that in light of present figures, pension companies are meeting the requirements of capital adequacy.
     But for how long?
     “Nobody can say that. I will not start predicting the future”, the main supervisor says.


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  Insurance Supervisory Authority

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