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German Pensionskassen, BaFin in ‘uncharted territory’ over solvency

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The German pension fund for a Catholic aid organisation in Cologne is one of three Pensionskassen in talks with the country’s regulator BaFin regarding the potential impact of 2017 losses.

The €546m Caritas Pensionskasse (Caritas PK) is currently discussing its 2017 balance sheet “in close coordination with the actuary, the accountants and the BaFin”, the pension fund told IPE in a statement.

Last week, BaFin issued a statement saying it had banned Caritas PK from taking on any new business since May, after finding that its recovery plan for meeting its solvency requirements was “inadequate”.

It is the first time BaFin has issued a Pensionskasse with such a ban. However, over the past year the regulator has frequently issued warnings to insurance-based pension funds regarding their funding structures.

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Earlier this year Caritas PK and its affiliated pension fund, the €329m Kölner Pensionskasse (Kölner PK), informed members about difficulties regarding the funding situation and possible cuts to pension payouts.

BaFin

BaFin’s office in Bonn

A detailed account of the solvency issues will only become available once the annual reports for both pension funds have been approved. A spokesperson for Caritas PK told IPE that its annual report would only be published once the general assembly had approved it. However, the general assembly was not due to hold another meeting this year, the spokesperson said.

Industry sources told IPE that it was unlikely the Caritas PK would take on new business any time soon.

Kölner PK blames rulebook

The Kölner PK is also currently not taking on any new business as it lacks funding to continue operations under the regulatory framework for mutual insurance companies.

If this situation continues, the fund will have to start planning for internal runoff.

In its 2016 annual report the Kölner PK’s board blamed – in part – “nonsensical measures” deriving from regulation for starting the fund’s solvency problems.

Some regulatory requirements had forced the fund to sell off assets at the wrong point in time, the pension fund said, while some money put aside for the Zinszusatzreserve – the interest rate buffer – could have been better spent on filling the funding pool.

Cologne

Cologne’s Caritas and Kölner Pensionskassen face solvency problems

Both the Caritas and Kölner funds are structured as mutual insurance companies – Versicherungsverein auf Gegenseitigkeit (VVaG) – which brings with it certain solvency and interest rate “buffer” requirements.

The talks with BaFin now fall under the remit of Olaf Keese, who takes over joint management of the Caritas and the Kölner Pensionskassen this month. As a result of his appointment Keese will resign his seat on the board of the Peugeot pension fund in Germany at the end of the year.

Tax consultants’ fund talking to BaFin

Funding problems have also been reported at the pension fund for German tax consultants, the €992m Steuerberater Pensionskasse VVaG, with BaFin involved in negotiating a recovery plan. The fund itself declined comment.

“All this is completely uncharted territory for the industry and the regulator,” one source told IPE.

Insurance-based Pensionskassen had been performing well in Germany despite the funding requirements placed on them by their guarantees, but a mix of the low interest rate environment, challenging demographics and regulatory requirements has caught up with them.

Some providers have chosen to sell their Pensionskassen business to run-off companies, with Frankfurter Leben having bought two funds earlier this year, from AXA Germany and Cofra Group.

More regulation incoming as Bundestag passes IORP II bill

Bundesrat outside view

Germany’s Bundesrat building in Berlin

The regulatory burden and reporting requirements for Pensionskassen and other German pension vehicles are unlikely to reduce any time soon.

Germany’s lower chamber of parliament, the Bundestag, this month approved the government’s draft rules implementing the EU’s IORP II pension directive, known as the EbAV II.

The pension fund association aba said “there is hope” that its objections to the prospect of EU-wide harmonisation for occupational pension funds had been heard.

The draft bill has to be passed by the upper chamber of parliament (the Bundesrat) in a vote scheduled for today, with BaFin then due to issue circulars and guidelines on the actual implementation and industry-specific issues.

What is already certain, however, is that the EbAV II will mean more reporting and internal risk assessment requirements for pension funds.

“Overall the requirements for providers will increase significantly,” said Michael Hoppstädter, managing director of consultancy Longial.

– Barbara Ottawa

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