Insurance corporations and pension funds in OECD countries Massimo COLETTA (Bank of Italy) Belén...

Insurance corporations and pension funds in OECD countries

Massimo COLETTA (Bank of Italy)Belén ZINNI (OECD)

WPFS 2011, 24-27 October

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

ICPF are particularly important for households

Analysis of the impact of the recent financial crisis

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


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


Market structureNumber of companies by insurance business (life, non-

life, composite and reinsurance) In all countries except Chile and Luxembourg, non-life IC more

numerous than life IC

Number of employees In 2009, 8,5 out of 11,5 millions (75 per cent) were non-staff In Japan 60 per cent of all employees

Country market share The US largest market with a share of 40 per cent in 2009

Insurance reserves composition by country Life reserves prevailing


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 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 has remained less important than that

played by banks and other intermediaries In 2009, Sweden and France had the highest ratios (less than 20%). In

the overall OECD area stable at around 9 per cent

Balance 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



Contributions to private pensions

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


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


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

1995-2006 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


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

Conclusions

Insurance 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, the intermediation of IC is far less important than that played by banks and other intermediaries

As regards the asset allocation, on which the capacity of insurers to meet their obligations crucially depends, bonds and equities are the primary asset categories for insurance corporations in the OECD countries

The financial crisis started in 2007 hit the balance sheet of insurers especially through the equity component. Analysis of the change in total financial assets for the period 2007-2009 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

Conclusions

Private 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. The Netherlands stand out with a household private pension wealth well above two times the disposable income of the household sector

Conclusions

The role of statistics

Increased availability

Statistical gaps

The role of institutional organizations (OECD, ECB, Eurostat)

The need for cooperation

Recent initiatives (G20 recommendations, ECB’s new ICPF statistics)

ICPF in the OECD countries

Thank you for your attention.


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.


Canada3%

US40%

Japan12%

UK10%*

France8%

Germany6%

Italy4%

Korea3%

Others14%

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 sector penetration in 2009 (percentages)

Source: Insurance statistics, DAF, OECD.Stat.

0

5

10

15

20

25

30

35

40

45

50


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


0%

20%

40%

60%

80%

100%

Non-financialassets

Other assets

Shares

Securities

Insurance companies: balance sheet composition in 2009

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


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 schemes

14.85

0.58

2.85

5.47

1.55

14.04

11.56

16.69

1.060.64

0.01

2.90

1.05

2.512.96

1.40

10.64

1.10

2.56

1.03

9.66

1.180.98

13.78

4.01

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

2002

2009

Private 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 vehicles

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00

AustraliaAustria

BelgiumCanada

ChileCzech Republic

DenmarkEstoniaFinlandFrance

GermanyGreece

HungaryIcelandIreland

IsraelKorea

LuxembourgMexico

NetherlandsNew Zealand

NorwayPortugal

Slovak RepublicSlovenia

SpainSweden

SwitzerlandTurkey

United KingdomUnited States

Autonomous pension funds Non-autonomous pension funds (book reserve)Pension insurance contracts Other

Pension assets by financing vehicle as a % of total pension assets in 2009

Source: Pension Indicators, DAF, OECD.Stat.

Pension funds

Autonomous 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 funds

Autonomous 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

IsraelItaly

LuxembourgNetherlands

PolandPortugal

SpainSwitzerland

United KingdomUnited States

Currency and deposits Securities other than shares Loans

Shares and other equity Other Non-financial assets

Pension funds

Net 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

Insurance corporations and pension funds in OECD countries Massimo COLETTA (Bank of Italy) Belén...

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