DENMARK – Codan’s new Tidspension, or Time Pension, has won the backing of an academic study - while the life insurer says the product’s growth has been “explosive”.
“Our approach is inspired by a new pension product called Tidspension which was launched in September 2002 by the Danish insurance company Codan,” say the authors of a study into return smoothing mechanisms.
“In this paper we suggest one particular simple and well-defined pension strategy and we demonstrate its attractive properties,” say Montserrat Guillen, Peter Lochte Jorgensen and Jens Perch-Nielsen in the 36-page study, “Return Smoothing Mechanisms in Life and Pension Insurance: Path-dependent Contingent Claims”.
“This paper considers simple and well-defined pensions strategies defined as being transparent, automatic and efficient,” they add.
“We illustrate that a return-smoothing mechanism is a useful tool for constructing such strategies in practice.” The mechanism is considered without a guarantee linked to it.
The idea was considered transparent because policyholders are “fully informed about the composition of the underlying investment portfolio and of how market returns are smoothed and credited to their personal accounts over time”.
“This is an enormous improvement over the current state of affairs in the large market for traditional participating policies in which the embedded return smoothing mechanisms are not mathematically well-defined making them harder – if not entirely impossible – to evaluate.”
The return smoothing mechanism “can be perceived as a particular investment scheme which implies smoothing of returns on the underlying investment fund over time”.
“A spectacular growth rate on the attractive Danish company pensions market last year shows that Codan stands out,” said Codan spokeswoman Birgitte Boers.
“This improvement is not least attributable to an entirely new pension type, ‘Time Pension’, which Codan launched in the autumn of 2002, and which produced an almost explosive increase of as much as 406% in booked premiums. It has risen from 44 million Danish crowns in 2002 to 222.7 million crowns in 2003.