BaFin will continue to intensely monitor insurers and Pensionskassen that have been affected by low interest rates, one of the main risks identified by the regulator in a recent report.
The German financial supervisory authority will analyse the risks from high-yield products to evaluate whether there is a need for supervisory action for Pensionskassen and insurers, it said. It will also carry out stress tests with different interest rate scenarios.
The regulator will turn its scrutiny on six main risks in its supervisory activity in 2022. The risks derive not only from the low-interest-rate environment, but also from corrections in the real estate market, significant corrections in international financial markets, default on corporate loans, cyber attacks and insufficient action to prevent money laundering, it said in the report.
BaFin has also listed two long-term risks for the financial industry: sustainability and digitisation.
Other risks relate to balance sheet fraud, crypto assets and investment recommendations on social media. BaFin also continuously monitors geopolitical tensions such as Russia’s war against Ukraine and its possible consequences for financial markets.
Allianz wants quick settlement over hedge fund losses
Insurer Allianz, which is still dealing with authorities in the US in an effort to settle the several legal cases in connection to losses in the structured alpha funds (hedge funds) managed by its asset management arm Allianz Global Investors, is seeking a fast settlement, the chief executive officer Oliver Bäte said at the company’s AGM on 4 May.
The structured alpha funds dramatically lost value in the wake of market turbulence caused by the COVID-19 pandemic and had to be largely closed, he explained.
Investors sued Allianz Global Investors US for billions in damages, and the US Department of Justice and the Securities and Exchange Commission started investigations and proceedings in the matter.
“We deeply regret the losses incurred and take the matter and the related proceedings very seriously,” the CEO said.
In view of pending settlements with investors and ongoing discussions with the US authorities, Allianz had set aside €3.7bn in 2021. As a result, net income for the last financial year fell by €2.8bn, the CEO said.
Swiss Pensionskassen on track to funding ratio target
The average funding ratio of the 98 public Pensionskassen in Switzerland has stabilised at 104.7% at the end of 2020, on the path to fulfill the minimum requirement of 80% within a 40-year period, according to a report by the Swiss government.
For the 37 public pension funds with state guarantees, partially and fully funded, the funding ratio stood at 93.9%. For the 27 partially funded public pension funds with state guarantees the average funding ratio has improved by more than 10 percentage points since 2014, from 78% to 89%.
The total underfunding of all public schemes at the end of 2020 was CHF20.85bn (€20bn), including CHF20.41bn of the partially funded pension funds. The pension assets of public schemes amounted to CHF320bn, according to the report.
The Federal Social Insurance Office (FSIO) estimates the return on investment across all public pension schemes in 2021 at 10.4%, and for the pension schemes with a state guarantee at 9.6% due to a more defensive investment strategy.
The funding ratio is therefore likely to increase further, by around one percentage point, according to the FSIO.
The Swiss government (Federal Council) has reported for the first time this year to parliament on the financial situation of public pension funds. It will publish a report every 10 years to give parliament the option to make timely corrections to the financing rules for pension funds.
The Federal Council currently does not consider necessary political action on the matter, it said.
Young bet on equities and investment funds for pensions
The share of young people saving for retirement through equities and investment funds has more than tripled since 2016, from 16% to 50%, according to ’Youth, Pensions, Finances’, a study conducted by German industry-wide pension fund MetallRente published this month.
Almost two-thirds of young men (62%) save for retirement by investing in equities and investment funds, while only a third (34%) of the women do so, but this has almost doubled since the last study in 2019.
According to the research, particularly alarming is the fact that only 29% of young women set savings aside for pensions, while 45% of young men now regularly save for retirement.
Other forms of savings such as fixed-term deposits (49%), real estate contracts linked to retirement provisions (38%) or Riester-Rente contracts (22%) are instead becoming increasingly less attractive in a low-interest-rate environment.
Popularity of company pension schemes remain stable among young people at 37%. Nine out of 10 (90%) young adults are aware of the need for additional pension provisions as a protection from poverty in old age, according to the research.