Insurance corporations and pension funds in OECD countries

Massimo COLETTA (Bank of Italy)

Belén ZINNI (OECD)

UNECE, Expert Group on National Accounts, Geneva - 3 May 2012

Outline

� Motivations

� Insurance corporations in OECD countries

� Pension funds in OECD countries

� Conclusions

Motivations

� Insurance corporations and pension funds (ICPF) play an increasing role in the financial systems of industrialized countries

� Analysis of the impact of the recent financial crisis

� ICPF are particularly important for households

� Increased availability of cross-country comparable statistics: OECD.Stat

Insurance corporations in OECD countries� Market structure (number of insurers, number of employees,

market share)

� Sector evolution:

� Economic indicators:

� Penetration

� Density

� Financial indicators:

� Total financial assets of insurance corporations (IC) as a % of total financial assets of financial corporations (S12)

� Asset composition

� The weight of insurance reserves in the households’ financial assets

Insurance corporations in OECD countries

Economic indicators

Gross premiums to GDP (penetration)� France, Ireland, Korea, Luxembourg, Switzerland, the UK and

the US above 10 per cent of GDP in 2009 (confirmed by data on 2010)

� Luxembourg is clearly an outlier

Gross premiums to population (density)� Penetration dynamics confirmed even though exchange rates

impacted on data converted in US dollars

� Luxembourg still an outlier

Financial indicators

Total financial assets of IC as % of total financial assets of S12� The intermediation role of IC less important than that played by banks

and other intermediaries (e.g. mutual funds)� In 2009, Sweden and France had the highest ratios (less than 20%). In

the overall OECD area stable at around 9 per centBalance sheet composition

� Investment strategy fundamental to meet obligations with policy holders.

� Bonds are the dominant asset category� Bonds and equities are channel for transmission of financial turmoil to

IC

Weight of insurance reserves in households’ financial assets� Ratios have generally remained at a low level� Life insurance reserves 80% on average for the overall OECD area

Insurance corporations in OECD countries

Pension funds in OECD countries

� Contributions to private pension schemes

� Financing vehicles for the accumulation of pension savings

� Autonomous pension funds (APF)

� APF total assets as a percentage of GDP

� APF total financial assets as a % of total financial assets of S12

� APF asset allocation

� Pensions from a household perspective

Pension funds in OECD countries

Contributions

� The ratio of private pension contributions to household disposable income has increased in most OECD countries over the last decade

� In 2009, private pension contributions represented a significant proportion of household disposable income in many OECD countries

Financing vehicles

� APF are the most common financing vehicle for the accumulation of retirement savings in most OECD countries

� However, pension insurance contracts prevail in France, Sweden and Denmark

� Non autonomous pension funds are rather uncommon in OECD countries

Pension funds in OECD countries

APF assets as a percentage of GDP� Huge disparities across countries and over time

� Relatively stable growth until 2007, a fall in 2008 and a recovery in 2009

APF financial assets as a % of financial assets of S12� This ratio remains low in most OECD countries

� Downward trend over the last decade

APF asset allocation� Significant increase of the proportion of shares and other equity in 1995-

2005

� The financial crisis has prompted a reallocation in favour of less risky assets such as currency and deposits and securities other than shares

� However, in the majority of countries, shares and other equity continue to represent the highest share of pension funds investments

Pension funds in OECD countries

Household perspective

Net equity of households in pension funds reserves as a % of households financial assets

� The weight of pension funds reserves in household financial assets has increased over the last decade and proved to be resilient to the recent financial crisis

� In 2009, pension funds reserves represented more than 30 per cent of the household financial assets in Australia (54%), Canada (35%), Netherlands (47%) and Switzerland (34%)

Net equity of households in pension funds reserves as a % of household disposable income

� The decline of this ratio in 2008 reveals that these reserves were actually affected by the recent financial turmoil

� However, a partial recovery took place in 2009

ConclusionsInsurance corporations

� Since 1995, the weight of the IC in the total financial sector has grown in many OECD countries. Nevertheless, for the OECD area as a whole, IC far less important than banks and other intermediaries

� As regards the asset allocation, bonds and equities are the primary asset categories

� The financial crisis hit the balance sheet of insurers especially through the equity component. Balance sheet data for 2009 shows a recovery towards the pre-crisis values

� Since 1995, the weight of life and non-life reserves in household financial assets has increased in most OECD countries, even though country ratios have generally stayed at a low level showing a limited role of this asset category

ConclusionsPrivate pensions

� Contributions as a % of household disposable income have increased over the last decade in most of OECD member countries

� APF are the most important financing vehicle

� Stable growth of APF. Impact of the crisis in 2007-2008 followed by signs of recovery in 2009. APF’s weight in the whole financial sector is still low in most OECD countries

� From a household perspective, the weight of pension fund reserves in household financial portfolios has increased, although these reserves were affected by the financial crisis and the values did not recover completely in 2009

� In some countries, household pension reserves have represented, for several years, more than 100 per cent of their disposable income. In the Netherlands household private pension wealth well above two times the disposable income of the household sector

Conclusions

The role of statistics� Increased data availability

� Statistical gaps still to filled in

� The role of international organizations (OECD, ECB, Eurostat)

� The need for cooperation

� Recent initiatives

� G20 recommendations

� ECB’s new ICPF statistics since June 2011

� Solvency II Quantitative Reporting Templates on insurance corporations

ICPF in the OECD countries

Thank you for your attention.

Insurance corporations

21.7

66.8

3.48.1

Life

Non-life

Composite

Reinsurance

Number of companies in the OECD area in 2009 (percentages)

Source: Insurance statistics, DAF, OECD.Stat.

Insurance corporations

Canada

3%

US

40%

Japan

12%UK

10%*

France

8%

Germany

6%

Italy

4%

Korea

3%

Others

14%

Gross premiums: country market share in the OECD area in 2009

Source: Insurance statistics, DAF, OECD.Stat. *Data for the United Kingdom refer to 2008.

Insurance corporationsInsurance sector penetration in 2009 (percentages)

Source: Insurance statistics, DAF, OECD.Stat.

0

5

10

15

20

25

30

35

40

45

50

Insurance corporations

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

1995

2009

Financial assets of insurance companies as % of S12 financial assets

Source: Institutional Investors’s Statistics and Financial Balance Sheets non consolidated , STD, OECD.Stat

Insurance corporations

0%

20%

40%

60%

80%

100%

Austra

liaAust

riaBelg

ium

Canad

a

Chile

Czech

Rep

ulicD

enm

ark

Esto

niaFi

nlan

dFr

ance

Ger

man

yG

reece

Hung

ary

Icela

ndIs

rael

Italy

Japan

Korea

Luxe

mbourgM

exico

Neth

erlands

Norw

ayPola

ndPort

ugal

Slov

ak Repu

blicSl

oveniaSp

ain

Swed

en

Switz

erla

ndTu

rkey

Unite

d Ki

ngdom

Unite

d St

ates

OECD

Non-financial

assets

Other assets

Shares

Securities

Insurance companies: balance sheet composition in 2009

Source: Institutional Investors’ Statistics, STD, OECD.Stat.

Insurance corporations

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1995

2009

Households: life and non-life insurance reserves as a % of their total financial assets

Source: Financial Balance Sheets, non consolidated, STD, OECD.Stat.

Private pension schemesPrivate pension contributions as % of household disposable income

Source: Contributions from Pension Statistics, DAF, and Household disposable income from National Accounts, STD, OECD.Stat.

Private pensions’ financing vehiclesPension assets by financing vehicle as a % of total pension assets in 2009

Source: Pension Indicators, DAF, OECD.Stat.

Pension fundsAutonomous pension funds assets as a % of GDP in 2002 and in 2009

Source: Institutional Investors’ Assets , STD, OECD.Stat.

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2002

2009

Pension funds

1.0 0.6

13.8

3.0

9.3

3.2

0.9

2.8

6.1

0.8

3.3

1.0

10.8 10.7

2.3

8.2

2.82.2 1.7

0.5

11.2

6.0

14.9

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2002

2009

Autonomous pension funds financial assets as a % of total financial assets of S12

Source: Institutional Investors’ Assets and Financial Balance Sheets, non consolidated. STD, OECD.Stat.

Pension fundsAutonomous pension funds: asset allocation in 2009 (percentages)

Source: Institutional Investors’ Assets, STD, OECD.Stat.

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00

AustraliaAustria

BelgiumCanada

Czech RepublicEstonia

HungaryIceland

IsraelIta ly

LuxembourgNetherlands

PolandPortugal

SpainSwitzerland

United KingdomUnited States

Currency and deposits Securities other than shares Loans

Shares and other equity Other Non-financial assets

Pension fundsNet equity of households in pension funds reserves as a % of

total financial assets of the household sector

Source: Financial Balance Sheets, non consolidated (except for Australia and Israel for which only consolidated data are available), STD, OECD.Stat.

54.4

3.3

6.7

35.4

6.1

20.7

5.2

8.3

4.4

13.1

0.7

12.7

24.4

5.9

11.8

1.9 2.0

13.1

47.2

28.4

15.3

5.9

15.3

2.7

6.4

22.9

33.9

26.9

0.00

10.00

20.00

30.00

40.00

50.00

60.00

1995 2005 2009