DENMARK - The Ministry of Economic and Business Affairs and The Danish Insurance Association have agreed on a rescue package for pension funds which is designed to protect pensions solvency and prevent investors from being forced to sell assets in the current market turmoil.

The recent financial crisis in Denmark has left many insurance and pension companies fearing they would forced into a systemic divestiture of Danish mortgage bonds as well as other assets to protect pensions solvency because of falling equity prices and rising interest rates - a move which could have serious consequence for retirement savers and homeowners.

But the deal secured by the government and pensions officials should mean pension savers and homeowners will see more limited losses from the current financial crisis as the terms under which pension providers must operate are being softened until the end of 2009.

Under the initiative just signed, pension companies will be allowed to calculate their individual solvency requirements by taking their expected results into account once the situation has returned to normal - effectively removing the short-term use for mark-to-market valuations.

Similarly, yellow traffic lights are being removed and insurance and pension companies instead have to submit quarterly reports detailing the use of reserves to the Financial Supervisory Authority.

Terms of the deal mean mortgage interest rates will for the time being be a part of the yield curve - important because pension companies must use the rate to calculate their obligations - and this should counteract the considerable increase in liabilities created by the unusual interest rate developments.

All parties have also agreed in this period of turbulence and the significant depreciation in the financial markets, there is a need for companies to exercise more caution and consolidate certain processes so efforts are under way to cap bonus policy and the definition of account interest rates.

The Financial Supervisory Authority has the power to change the accounting notice so the initiatives does not require any new legislation.

"It is really a win-win situation," according to said Per Bremer Rasmussen Executive Director of The Danish Insurance Association.

"The agreement helps pension, retirement savers, mortgage lenders and dwellings. There is reason to be pleased with this agreement. It has been a very difficult month due to an unfortunate development in the euro interest rate market and the Danish mortgage market. This new agreement means that we will not be forced to hold fire sales of mortgage bonds. Furthermore, companies can now ensure that pensioners' savings will be better managed, while the mortgage market can be enhanced for the benefit of both pension savers and homeowners," he added.

Benny Buchardt, a representative of Pensam, says the firm is delighted with the rescue package created by the government, The Financial Supervisory Authority and The Danish Insurance Association.

"In short term will make a positive difference to the financial market however we are uncertain on the long term effects," said Buchardt. 

"This means we will be able to keep our current strategy and continue our work with that investment strategy", said Buchardt.

Similarly, deputy prime minister and economy and trade minister, Lene Espersen, commented: "I am very pleased that we have agreed on these initiatives, which may help to guarantee pension savers and homeowners. It is not in the pension savers' best interest that the pension and insurance companies are forced to sell off assets because of an extraordinary market. The market for mortgage bonds will find it difficult to cope with such a large sale given the current market situation.

"A major sale of mortgage bonds would have had severe consequences for retirement savers and homeowners in the form of falling prices and rising interest rates. We want to avoid that.  And that is why we now have made some adjustments in the rulebook, so we can have a situation which is more of the normal market," added Espersen.

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