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Finnish pension providers show strength in recession

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FINLAND - Finanssivalvonta, the Finnish Financial Supervisory Authority (FIN-FSA), has claimed the country's financial sector could cope with a "very severe recession", following the results of stress tests on the capital adequacy of banks and pension insurance companies.

The FIN-FSA admitted in this scenario the capital adequacy buffers in the financial sector would shrink, but said they "would withstand losses".

It added: "As a rule, the capital adequacy of authorised pension providers is at a good level. Their capital adequacy situation was eased by an Act on temporary amendments of the provisions on capital adequacy that was introduced at the end of 2008." This allowed the pension funds flexibility to avoid the need to sell-off equity holdings. (See earlier IPE article: Finnish funds prepare for relaxed solvency rules)

The organisation, which was formed in January through the merger of the Financial Supervision Authority and the Insurance Supervisory Authority, said the financial crisis meant insurance companies' investment activities were "largely unprofitable in 2008", but added the situation had improved in line with the recovery of the securities markets. (See earlier IPE article: Finland to merge supervisory authorities)

"The risk-taking of FIN-FSA's supervised entities has decreased compared to levels prior to the financial crisis, as the proportion of equity investments to total investments has fallen," it stated.

Anneli Tuominen, director general of FIN-FSA, said: "The stability of the Finnish financial system would not be threatened; not even if the economic development in 2010-2011 were to turn out clearly weaker than forecasted."

Latest figures from FIN-FSA showed at the end of March 2009 that the overall asset allocation of pension insurance companies - in relation to calculations of the solvency margin - comprised 53.5% in bonds, 14.4% in real estate, just 15.3% in shares, 6.6% in money market instruments and the remainder in miscellaneous investments.

In comparison, company pension funds reported a slightly higher allocation to equities of 21.4%, while bonds made up 42.8% of their portfolios and money market instruments accounted for 22% of assets invested, with 8% in real estate and the remainder held in other assets.

Industry-wide pension funds had a greater weighting to real estate investments with an average 35.1% allocation, while bonds amounted to 28.2% of assets, money market instruments were worth 13.3% and shares made up 20.9% of the portfolio, with the remainder in other investment classes.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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