In 2010, the number of contracts for “state-sponsored retirement provision” showed a year-on-year increase of 6.3% to 1,540,675 contracts, meaning that almost every fourth Austrian under 60 has a corresponding contract. At €1.1 billion, the volume of earned premiums or net premium payments was 9.2% higher than in the previous year, while the assets managed rose by 31.1% to approximately €5 billion. The volume-weighted performance amounted to 4.7% in 2010 (7.9% in 2009). These results can be drawn from the annual FMA study “The Market for State-Sponsored Retirement Provision in 2010” published today.
As in previous years, the insurance companies were able to further expand their dominant position in the state-sponsored retirement provision market. They managed to increase the number of contracts by 6.8% to 1,422,366, giving them a market share of 92.3%. In the case of investment fund management companies, the number of contracts fell slightly by -0.1% to 118,309, accounting for a market share of 7.7%. The average annual premium in 2010 was €644 for insurance undertakings and €782 for investment fund management companies.
Contracts for state-sponsored retirement provision run for a term of at least ten years. Investment fund management companies currently offer only ten-year contracts, while insurance undertakings also offer contracts with considerably longer terms, and these continue to be highly popular. At the end of 2010, nearly two thirds of the contracts had terms of 25 years or more, and a fifth actually ran for more than 45 years.
The performance of state-sponsored retirement provision schemes varied greatly during the year reported on. At 5.0%, insurance undertakings (volume-weighted) did clearly better than investment fund management companies, where performance stood at 2.5%. This is partly due to the asymmetric guarantee structure of state-sponsored retirement provision. For example, in the crisis year of 2008, primarily those products in the state-sponsored retirement provision segment did better for which stop losses had been triggered. Their share exposure was hedged so completely that the accelerated downward slide at the year-end was no longer or only partly reflected in the performance of the entire year. In return, parts of the paid-in capital could not profit from the upward trend in the equity markets in 2009 and 2010, resulting in a lower performance for the products with stop loss orders. This effect is expected to further decrease in an environment of rising equity markets over the next few years, since the share ratio will be increased with new premium payments. If, however, the equity markets were to fall again in the near future, clients would still be covered due to the low share ratio.
The number of contracts that have posted share ratios with a low income (i.e. below 10%) and thus a performance that has clearly been below average since the equity markets reached their lows (in mid-2008 to early 2009) amounts to about 700,000, or 45% of all contracts outstanding as at 31 December 2010. The cumulative premium volume, which had accumulated up to the time when the share ratio in these contracts was reduced, stood at €1.9 billion at the time of the reduction. Compared with currently managed assets, these contracts account for some 38% – with the new premium payments and the growing importance of the portion that is expected to perform well, this share will become less significant.
Some fundamental changes in the state-sponsored retirement provision also took effect on 1 January 2010. For example, to limit the risk the minimum portion which has to be invested in shares was lowered from 40% to 30%. Furthermore, customers may change over to a ‘life cycle model’ where the proportion of shares falls depending on the customer’s age (25% from 45 years of age, 15% for those aged over 55).
The complete study is available on the FMA website at: https://www.fma.gv.at/publikationen/studie-praemienbeguenstigte-zukunftsvorsorge/ (in German only).
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0676)/882 49 516