Falling coverage ratios will hamper Dutch pension funds' buy-out efforts, warns ABN Amro
NETHERLANDS - ABN Amro predicts half of Dutch company pension funds will shift assets to insured schemes.
Poor economic conditions and the regulatory environment will put pressure on Dutch pension funds to seek buy-outs, according to Dutch state-owned bank ABN Amro. But falling solvency levels of both pension funds and insurers will make it difficult to accomplish this in the short term, the bank said.
ABN Amro predicted that around half of the company pension funds within the country will shift their assets to insured schemes in the future.
Jan Willem Weidema, equity analyst at ABN Amro in Holland, said: “The increasing regulatory burden and diseconomies of scale will push around 100–150 of the current [approximately] 250 company pension funds to shift their assets to insured schemes.”
The bank suggested that full buy-outs, in which an insurer takes on responsibility from the trustees and sponsor of a pension fund for meeting the pension promise made by the fund, are a likely strategy for many pension funds. However, Weidema said that predicting any potential time period for a full buy-out was difficult.
Under current regulations pension funds are unable to transfer liabilities if their coverage ratio is less than 105%. The bank predicted the number of pension funds with a coverage ratio of less than 105% will increase over the coming months (see chart).
“The timing of actual inflows will be hard to predict given current and expected coverage ratio swings. The current development of financial markets does not promise much good for the coverage ratio of pension funds per third quarter of 2011,” said Weidema.“Therefore, we will see a low number of pension fund liquidations in the short term.”
Insurers’ excess capital is also decreasing due to continuing economic pressures, which will limit their ability to insure pension schemes.
“All [the major players] have suffered serious blows to their capital positions as a result of adverse market movements,” said Weidema.
“Ongoing turmoil in 2011 has clearly made matters worse: most insurers will have dropped below 200% solvency ratio per end of September 2011. This leaves little room for growth through risk-taking, such as offering insured solutions to pension funds.”
This is further exacerbated by the progression of regulatory demands upon insurers.
“With upcoming Solvency II regulation impacting insurers’ (excess) capital positions and capital ratios already being under significant pressure due to financial market turmoil, ensuring sufficient capital buffers to be able to attract new business is likely to become increasingly challenging,” Weidema said.
See Regional review: The challenges facing Dutch insurers and pension funds
This story originally ran on GP's sister title Risk.net
More on Netherlands
CBRE completes ING real estate acquisition
US/NETHERLANDS - CB Richard Ellis (CBRE) has completed the acquisition of ING Real Estate Investment Management (ING REIM) Europe, marking the final stage of CBRE's absorption of ING's real estate business.
Falling interest rates pummel funding ratios at PFZW, ABP
NETHERLANDS - Dropping interest rates knocked the coverage ratio for Pensioenfonds Zorg & Welzijn (PFZW) down to 91% and Stichting Pensioenfonds ABP's down to 90%.
State Street wins Dutch pension custody mandate
NETHERLANDS - Dutch pension fund Stichting Pensioenfonds SABIC Innovative Plastics has appointed State Street Corporation to provide custody and other services for its €700m ($970m) in assets.
APG and TIAA-CREF invest $1.5bn in US malls
NETHERLANDS/US - Dutch pension fund APG and the US pension fund manager TIAA-CREF have joined forces to invest in five US shopping malls valued at $1.5bn.
PGGM close to acquiring majority stake in UPP - reports
NETHERLANDS/UK - PGGM is in advanced negotiations with Barclays Capital to acquire its majority stake in University Partnerships Programme, the UK's largest developer of university campuses, according to reports.
