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Danish pension insurers in bonus reserve wipeout

DENMARK – PFA, the Danish insurance group has announced losses of some DKK 18.2 billion – completely wiping out the group’s bonus reserves and forcing it’s pensions arm into emergency talks with the Danish Financial Supervisory Authority - as a result of falling equity markets after the shock in the US of September 11.

PFA Pension, the groups pension division, has entered into dialogue with Denmark’s regulator to draw up a plan to secure the savings of its customers.

In recent years, the pension sector in Denmark has increased its holding of stocks.
This year, Danish equities have fallen by 24% with 12% of the drop coming after September 10.
Foreign stocks have gone down by 28%. The decline since 10 September totals 14%.

"These are unheard-of capital losses in less than two weeks, and we have to realize that the capital losses of the PFA Group imply that the bonus reserves are exhausted. At the end of 2000 the reserves totalled DKK 18.2 billion," says Henrik Heideby, managing director of PFA Pension.

The group says its losses have been so severe that it is no longer able to comply with the requirements of capital under Danish law.

“The capital losses that have been recorded until now do not affect the savings on the customers' deposits. However, the accumulated bonus reserves are exhausted. Whether the declines in prices have stopped depends exclusively on the development in the financial markets,” adds PFA.

One Danish fund manager believes PFA’s losses, coupled with those of its competitors Trygg-Baltica and Danica, could lead to a shake up of the Danish pensions industry.
“These firms have a minimum guarantee that they need to deliver to clients
“In the good years what they then do is put their excess aside to their reserve capital and this helps them to have higher equity exposure.
“Consequently, during this crisis they have lost a lot of money, which puts them in a very weak condition. They could recover, but the possibility is that they might be bought to acquire capital.
“There is certainly going to be a lot of action here in the next couple of months with maybe some of the pension funds forced to merge.”

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