Solvency levels at Dutch pensions insurer De Eendragt Pensioen, which is to be acquired by insurer ASR, dropped as low as 80% last year, according to its 2014 annual report.
The funding shortfall – caused by a “combination of factors” – was so pronounced De Eendragt’s board concluded that putting in place a recovery plan on its own would have been impossible.
Once regulators approve ASR’s acquisition of De Eendragt, for the symbolic amount of €1, the insurer is expected to increase De Eendragt’s solvency to the maximum level of 130%.
Over the first quarter of 2014, De Eendragt boosted its solvency to the required level after divesting nearly the whole of its return portfolio, consisting of equities and real estate, in favour of its matching portfolio of German and Dutch government bonds.
Subsequently, the company reduced interest exposure by increasing the duration of its holdings in government paper.
However, according to the supervisory board, falling interest rates, the combination of actuarial data predicting a further increase in longevity, and the completion of an internal calculation model for liabilities led to another solvency drop.
According to its 2014 annual report, De Eendragt concluded that its weakened financial position would preclude any future indexation and therefore put its acquisition activities on hold, while four employers left the company after their contracts expired, leaving it with 37 clients at year-end.
The board said it decided against liquidating the company and subsequently placing pension rights within the new APF pensions vehicle, pointing out that this would have changed participants’ guaranteed nominal pensions into ‘soft’ rights.
It also warned that De Eendragt, if the regulator were to reject the ASR takeover, might be unable to honour its pension obligations.
In this event, De Eendragt may be forced to make a rights cut, the board said.
De Eendragt Pensioen has 5,275 active participants, 11,735 deferred members and 5,285 pensioners.