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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
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
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
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 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
Insurance corporations in OECD countries
Pension funds in OECD countries
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
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
1995-2006 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
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
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.
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
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 corporations
Insurance 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%
Non-financialassets
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 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