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IPE special report May 2018

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German regulator scrutinising Pensionskassen ‘run-off’ deals

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Germany’s top financial regulator is scrutinising two recent transactions involving the transfer of Pensionskassen to insurance-backed ‘run-off’ arrangements.

At a press conference last week, Frank Grund, executive director for supervision of insurers and Pensionsfonds at BaFin, said more Pensionskassen were considering such a transaction.

It follows two high-profile purchases of Pensionskassen by insurer Frankfurter Leben-Gruppe (Frankfurt Leben): In February it bought the €3bn multi-employer Pro bAV Pensionskasse from Axa Germany, and in April it bought the €1.8bn Prudentia PK, which provides pensions to workers at C&A, the fashion company.

However, Grund did not name the companies involved or give details of the deals in question.

“We are examining closely whether the high legal provisions are fulfilled and whether the interests of the insured would be safeguarded under the new roof,” he said.

In case of doubts, he added, BaFin would “either demand alterations” to the contract or “stop the transfer”.

The regulator has also placed roughly a third of Germany’s 122 Pensionskasse vehicles under “increased supervision” to monitor their funding status.

It expressed concern that the continued low interest rate environment would lead to many more Pensionkassen needing top-up payments.

BaFin

BaFin’s office in Bonn

“Without additional capital from outside, some Pensionskassen will not be able to fulfil their obligations,” Grund said.

Some Pensionskassen already receive top-up payments, either from the sponsoring employers that set them up, or from the shareholders if they are set up as a listed company.

In its annual report, BaFin confirmed that many Pensionskassen had upped their capital buffers, but warned these would not suffice in a continued low interest rate environment.

Nine out of the 122 Pensionskassen failed the national supervisor’s stress test, compared to eight last year.

Pensionskassen are insurance-based pension funds which, like all German pension vehicles up to now, have a guarantee element.

For last year, the BaFin calculated an average net interest granted by Pensionskassen at around 3.9%.

They do not have to report their actual returns on investments.

Related images

  • BaFin in Bonn, insurance and banking supervision site

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