German reinsurance company Munich Re is withdrawing from the Russian market in response to the invasion of Ukraine, it said yesterday.
Munich Re will not renew existing contracts in Russia and in Belarus, an ally of Russia in the war against Ukraine. It will also stop new businesses and investments in the region.
The company could make an exception to its new policy if persons or companies worth of protection would be negatively affected by the end of a business contract, and if permitted under sanctions.
Munich Re condemns the attack of the Russian army on Ukraine supporting the sanctions imposed, it added.
“Russia’s attack [on Ukraine] constitutes an act contrary to international law. The attempt to put the law of the most powerful above international law is completely unacceptable. We support the western sanctions also knowing that these will not remain without consequences for our national economies,” said Joachim Wenning, chair of Munich Re’s management board, in a statement.
Pension assets under inflation shocks
The sanctions on the energy sector and supply bottlenecks will continue with a sustained and rising inflation, and high volatility is to be expected on markets, affecting pension assets and obligations, consultancy Mercer said.
“The actuarial interest rate for a duration of 15 years has already fluctuated strongly in the first two and a half months (of this year) having values in the range of 1.3 to 2.1%,” said Thomas Hagemann, chief actuary of Mercer Germany.
“Further inflation shocks in particular are a challenge for investors that have to prepare their portfolios” for this, he said, adding that Mercer recommends a “broad mix” of different inflation-hedging investments.
It is still unclear how the conflict in Ukraine and geopolitical tensions will progress this year. The Russia-Ukraine conflict is already having a “massive impact” on capital markets, it said.
Last year pension assets of companies listed on the DAX 40 index rose by around €18bn to reach a record high of €299bn, according to figures published by Mercer yesterday based on the companies´ financial statements.
An outflow of €4bn resulted from Vitesco and Daimler Truck leaving the DAX, while currency conversions increased plan assets by €6bn, leading to a return of around €17bn, or 6%.
“Equity markets have performed positively in 2021 while there have been losses in the bond space,” said Jeffrey Dissmann, head of investment consulting at Mercer in Germany.
Pension obligations of the DAX 40 firms fell by €23bn to €412bn during the period as a consequence of actuarial gains in the amount of €21bn mainly due to the increase in the discount rate. This value is still above the previous year’s level of €406.9bn, when the DAX had 30 companies.
“The interest [rate] level has been very volatile in 2021. Compared to the extremely low interest rate at the end of 2020, the interest rate has recovered significantly,” said Hagemann.
The largest part of the new companies added to the DAX has only a small amount of pension obligations, with the exception of Airbus accounting for €23bn in defined benefit obligations (DBO) and €13bn in pension assets as of the end of 2020, it said.
The funding ratio in the DAX 40 is now over 72%, up from 64% in the prior year and 65% in the case of the DAX with 30 companies, as a result of the relief on the side of interest rate and the positive development in capital markets.