FMA Study 2015: state-sponsored retirement provisions market continues to shrink, despite boom in long-term insurance contracts. Returns very heterogeneous
The number of state-sponsored retirement provision contracts fell for the third year in a row in 2015. The number of contracts was down by 5.4% as per the end of the year to 1 505 623. The portfolios held in contracts from insurance undertakings decreased by 4.5%, while products from investment fund management companies decreased by 23.3%. The substantial decrease in products from investment fund management companies can to attributed to the fact that they are withdrawing from this type of product, and have not been conducting any new business in this area since 2010, while existing contracts exclusively with a 10 year maturity, are currently generally maturing. The volume of premiums earned and the net amount paid in also decreased by 5.0% year-on-year to € 975 million. The volume of premiums for insurance contracts decreased by 4.4% to € 940 million, and by 20% for investment fund management companies to € 35.9 million. The average annual payments per contract have stabilised in the past three years to around € 640. Net inflows means that assets under management for state-sponsored retirement provisions increased in 2015 by 1.3% to € 8.2 billion. In 2014, the assets under management however increased by +4.3%. Assets under management in investment fund management companies fell by 32% to € 364 million (2014: € 534 million), while they rose in insurance companies by 3.6% to € 7.8 billion (2014: € 7.5 billion).
Extremely mixed returns on individual products
The investment performance on the total capital – i.e. the cumulative customer premiums plus the state premiums – was clearly positive in 2015, at +5.9% before costs. After the deduction of costs, the yield of individual products is however very heterogeneous: Slightly more than half posted negative returns. Calculations for comparison purposes for the 10-year period between 2006 and 2015 with monthly payments of € 100 reveal a total deposited amount including state premium of € 12 801. Out of 33 products that were available for the entire period, less than half of them displayed positive returns (average + € 466), while 18 products posts negative performances after costs (average – € 721). The reason for this is due primarily to the very varied cost structure of the individual products, in particular the composition of the legally required guarantee on the paid-in capital.
The capital guarantee is composed either of derivatives (24.3%), external guarantors (31.2%), internal models (24.9%) or hybrid forms (19.6%). The number of contracts, for which the equity share that can be recognised in income was stopped out below 1% in order to at least be able to guarantee that the paid-in capital could be paid-out again, stood at 36 108 at the end of 2015, or 2.4% of all valid contracts. In 2014, this was still the case for 97 302 contracts i.e. 6.1% of all contracts. The problem of such “stopped out contracts” in particular affects the investment fund management companies, for whom 16.6% of contracts are affected, while just under 2% of contracts for insurance undertakings are affected.
In order to ensure greater transparency in the very heterogeneous cost structures of the individual providers, the FMA tightened up information obligations in the life assurance sector with effect from 01.01.2016, and issued a Regulation for using a standardised table for the disclosure of costs.
The consolidation of the market for state-sponsored retirement provision will most probably continue in the coming years. State-sponsored retirement provision is increasingly being used to build-up insurance for old age, and less for the purpose of state subsidised form of saving and investment. There has been a massive decrease in the number of contracts with maturities of up to 15 years, while contracts with maturities of 25 years and longer already make up 70% of all contracts. Slightly more than one quarter of contracts even have a maturity of greater than 45 years.
The state premium for the past four yours stood at 4.25% of the paid-in premium. The state premium was still 9% in 2010 and 8.5% in 2011. The maximum state-sponsored deposit increased from € 2 495.12 in 2014 to € 2 561.22 in 2015. The maximum state premium for 2016 of € 113.77 is once again higher than in the previous year (€ 108.85) but considerably below the highest value of € 210.35 in 2009.
The complete study is available on the FMA website (in German only) at: https://www.fma.gv.at/publikationen/studie-praemienbeguenstigte-zukunftsvorsorge/
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)676/882 49 516