New Investment Challenges in Pension Insurance, 15.04.2004 Developments and Trends in Fully-Funded...

New Investment Challenges in Pension Insurance, 15.04.2004New Investment Challenges in Pension Insurance, 15.04.2004

Developments and Trends Developments and Trends in Fullyin Fully--Funded Pensions in Funded Pensions in

BulgariaBulgaria

Bisser PetkovBisser Petkov – – Deputy Chairperson of FSC, Head of Deputy Chairperson of FSC, Head of Social Insurance Supervision DepartmentSocial Insurance Supervision Department

ContentsContents

The Bulgarian Pension ModelThe Bulgarian Pension Model: : learning from international learning from international experience and indigenous solutionsexperience and indigenous solutions

Key indicators of the current Key indicators of the current situation and development of the situation and development of the pension market in Bulgariapension market in Bulgaria

Investment return of pension fundsInvestment return of pension funds

Developing Fully-funded Pensions in Developing Fully-funded Pensions in Bulgaria Bulgaria

((major stepsmajor steps))

19941994 – – voluntary fully-funded pension based on individual voluntary fully-funded pension based on individual account accumulations emerged account accumulations emerged

19991999 – – regulating this type of pensions by legislation regulating this type of pensions by legislation ((adoption adoption of SVPIA and MSICof SVPIA and MSIC))

20002000 – – Establishing SISA and licensing the first pension Establishing SISA and licensing the first pension companies companies

- - Beginning of membership in occupational pension Beginning of membership in occupational pension fundsfunds

20022002 – – universal pension funds started operatinguniversal pension funds started operating

20032003 – – merging supervisors in the non-banking financial sector merging supervisors in the non-banking financial sector – – establishing FSC establishing FSC

- - Consolidating the reform Consolidating the reform ((adopting SI Codeadopting SI Code))


Essential Features of the Essential Features of the Implemented Pension ReformImplemented Pension Reform

Regulating and strengthening the Regulating and strengthening the voluntary pension provision system voluntary pension provision system ((IIIrd IIIrd pillarpillar)) Reforming the existing pension system Reforming the existing pension system ((Ist Ist pillar pillar – – mandatory pay-as-you-go systemmandatory pay-as-you-go system)) Transferring part of the mandatory pension Transferring part of the mandatory pension contributions to the system of occupational and contributions to the system of occupational and universal pension funds universal pension funds ((IInd pillarIInd pillar))


Core Characteristics of the Bulgarian Core Characteristics of the Bulgarian Pension ModelPension Model

Security through diversity and competition: three-pillar pension model Reforming the public social insurance system administered by the NSSI (first pillar) Supplementary mandatory pension insurance (second pillar)

Mandatory participationDefined contributions accumulated in individual accountsOpen-end funds (occupational and universal) managed by private pension companies (PICs)Centralized collection process administered by the NSSI

Supplementary voluntary pension provision (third pillar) Public control over the operations of PICs (Consultative and Trustee Boards) Government supervision over supplementary pension provision (SISA FSC )

I PILLARMandatory social

insurancePAYG system

NSSI

II PILLARSupplementary

mandatory pension insurance

Fully-funded pension system with individual

accounts

III PILLARSupplementary voluntary

pension insuranceFully-funded pension

system with individual accounts

Voluntary pension funds – since –1994

Bulgarian Pension ModelBulgarian Pension Model

Universal pension funds – mandatory

participation of persons born after 31.12.1959

Occupational pension funds – for types of

occupation requiring early retirement


Specific characteristics of the Specific characteristics of the Bulgarian Pension ModelBulgarian Pension Model

Maintaining the key status of the mandatory PAYG Maintaining the key status of the mandatory PAYG system with defined benefitssystem with defined benefits Cautious and gradual approach towards the Cautious and gradual approach towards the introduction of a fully-funded component managed introduction of a fully-funded component managed by private companies through transfers from the by private companies through transfers from the PAYG to the fully-funded system PAYG to the fully-funded system (2% - 5%)(2% - 5%) One PIC is allowed by law to manage 3 PFs One PIC is allowed by law to manage 3 PFs Mandatory participation of persons working in Mandatory participation of persons working in arduous labor conditions; eligibility for programmed arduous labor conditions; eligibility for programmed withdrawal upon early retirementwithdrawal upon early retirement


Changing the System as We GoChanging the System as We Go

Increasing the minimum capital of the PIC Increasing the minimum capital of the PIC required by lawrequired by law

Introducing daily asset valuation for the PFs and Introducing daily asset valuation for the PFs and marinating the individual accounts in units marinating the individual accounts in units followingfollowing 01.07.2004 01.07.2004 Additional regulatory guarantees forAdditional regulatory guarantees for::

security of the pension assets security of the pension assets minimum return on the investments of the minimum return on the investments of the supplementary mandatory pension fundssupplementary mandatory pension funds

Development of the Bulgarian Pension Development of the Bulgarian Pension Market Market

20002000 – – Licensing Licensing 9 9 PICsPICs

20012001 – – Berliniche Leben was terminated Berliniche Leben was terminated through voluntary liquidationthrough voluntary liquidation

20032003 – – PIC PIC DoverieDoverie acquired PIC acquired PIC BulgariaBulgaria

- - Licensing a new company Licensing a new company – “– “DZIDZI – – Pension InsurancePension Insurance””

20042004 – – eight licensed PICs, each managing eight licensed PICs, each managing three PFs three PFs ((universal, occupational, universal, occupational, voluntary)voluntary)

Number of participants by type of Number of participants by type of PFs PFs

quarterly basisquarterly basis (2002 – 2003) (2002 – 2003)

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

03.2

002

06.2

002

09.2

002

12.2

002

03.2

003

06.2

003

09.2

003

12.2

003

Total forOPFs

Total forUPFs

Total forVPFs

PIC Market Share by Number of PIC Market Share by Number of PF Participants (through Dec PF Participants (through Dec 31, 2003)31, 2003)

42,26%

26,63%

11,33%

7,29%

5,30%

4,02%

3,16%

0,01%

0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00% 40,00% 45,00%

ПОК "Доверие" АД

ПОД "Алианц България" АД

ПОК "Съгласие" АД

ПОД "Ай Ен Джи" ЕАД

ПОК "ДСК-Родина" АД

ПОД "Лукойл Гарант-България" АД

ПОАД "ЦКБ-Сила"

"ДЗИ - Пенсионноосигуряване" АД

Allianz-Bulgaria PIC

Doverie PIC

Saglasie PIC

ING PIC

DSK - Rodina PIC

Lukoil Garant - Bulgaria PIC

Sila PIC

DZI - Pension insurance PIC

Net Assets of Pension FundsNet Assets of Pension Funds (2002 – (2002 – 2003)2003)

332465

510543

0

100000

200000

300000

400000

500000

600000

2002 2003

UPFOPFVPFTOTAL

Market shares of PICs by volume of Market shares of PICs by volume of assets under management assets under management ((throughthrough

31.12.2003)31.12.2003)38.52

31.74

9.95

6.51

6.29

5.04

1.95

0.01

0 10 20 30 40 50

ПОД "Алианц България" АД

ПОК "Доверие" АД

ПОК "Съгласие" АД

ПОД "Лукойл Гарант-България" АД

ПОД "Ай Ен Джи" ЕАД

ПОК "ДСК-Родина" АД

ПОАД "ЦКБ-Сила" АД

"ДЗИ - Пенсионно осгиуряване" АД

(%)

70,26

Allianz-Bulgaria PIC

Doverie PIC

Saglasie PIC

Lukoil Garant - Bulgaria PIC

DSK - Rodina PIC

ING PIC

Sila PIC

DZI - Pension insurance PIC


PF Investments and YieldPF Investments and Yield

Regulatory investment limitsRegulatory investment limits

Actual investment portfolio structureActual investment portfolio structure

Return on the investments of the PFsReturn on the investments of the PFs

Regulatory Investment Limits for Regulatory Investment Limits for Voluntary Pension Funds Voluntary Pension Funds ((throughthrough

31.12.2003)31.12.2003)

Minimum %

Maximum %

minimum net assets value of the fund (%)

maximum net assets value of the fund (%)

Securities issued and or guaranteed by the government

44.23 75.71 30.00

Bulgarian equities 0.00 5.73 10.00Corporate bonds 0.00 8.23 20.00Municipal bonds 0.00 2.17 10.00Bank deposits - total 0.00 38.22 25.00Mortgage bonds 3.28 18.36 30.00Investment estate 0.00 6.12 10.00Derivatives - put options and bonds 0.00 0.00

2.50

Foreign investments 0.00 0.15 20.00

Current structure in SPF

Investment instruments

Regulatory limits

Regulatory Investment Limits for Regulatory Investment Limits for Universal and Occupational PFs Universal and Occupational PFs ((throughthrough

31.12.2003)31.12.2003)

Minimum %

Maximum %

minimum net assets value (%)

maximum net assets value (%)

Securities issued or guaranteed by the government

57,93 85,73 50.00

Bulgarian equities 0.00 5.33 10.00Corporate bonds 0.00 7.20 20.00Municipal bonds 0.00 3.67 10.00Bank deposits - total 0.00 36.19 25.00Mortgage bonds 1.21 14.75 30.00Real estate 0.00 3.48 5.00Derivatives - put options of indexes and bonds 0.00 0.00

2.50

Foreign investments 0.00 0.29 15.00

Investment instruments

UPF Investment Portfolio UPF Investment Portfolio Structure (through Dec 31, Structure (through Dec 31, 2003)2003)

Securities issued or

guaranteed by the state

71.72%

Securities listed for trading at

regulated markets

3.83%

Bank deposts

13.13%

Investment estate

0.22%

Mortgage bonds

10.86%

Municipal bonds

0.23%

Investment abroad

0.01%

OPF Investment Portfolio OPF Investment Portfolio Structure (through Dec 31, Structure (through Dec 31, 2003)2003)

Securities listed for trading at

regulated markets

6.58%

Mortgage bonds

7.10%

Municipal bonds

0.50%

Bank deposits

16.11%

Investment estate

0.71%

Investment abroad

0.02%



68.98%

VPF Investment Portfolio VPF Investment Portfolio Structure (through Dec 31, Structure (through Dec 31, 2003)2003)



58,62%

Investment aborad

0.01%

Securities lsted for trading at

regulated markets

7,29%

Mortgage bonds

7,67%

Municipal bonds

0.41%

Bank deposits

21,94%

Investment estate

3,34%

Other investments

0.72%

Pension Funds and Capital Pension Funds and Capital Market Development in Market Development in BulgariaBulgaria SOFIX values 10.2000-12.2003

0

100

200

300

400

500

10/0

001

/01

03/0

106

/01

09/0

111

/01

02/0

204

/02

07/0

210

/02

12/0

203

/03

06/0

308

/03

11/0

3

Investment Return of Supplementary Mandatory Investment Return of Supplementary Mandatory Pension FundsPension Funds

10,99%

22,73%

11,01%

22,98%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

Average weighted rate of return of universal pension funds Average weighted rate of return of occupational pension funds

Return realized during the period 01.01.2003- 31.12. 2003

Return realized during the 21-month period from 01.04.2002 through 31.12.2003

Return realized during the period from 01.01.2003 through 31.12.2003

Return realized for the 2-year period betw een 01.01.2002 and 31.12.2003

Investment Return of Supplementary Voluntary Investment Return of Supplementary Voluntary Pension FundsPension Funds

9.97%

11.09 %

20.77%

23.17 %

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Return realized during the period 01.01.2003-31.12. 2003

Return realized over the 2-year period between01.01.2002 and 31.12.2003

брутна доходност

нетна доходност

Types of government debt instruments Types of government debt instruments held by PFs through held by PFs through 31.12.2003 31.12.2003

value (thousands)

share (%)

value (thousands)

share (%)

value (thousands)

share (%)

value (thousands)

share (%)

Discount T-bonds 795 1.02 146 0.15 244 0.21 1,185 0.41Interest-bearing T-bonds 39,083 50.34 46,610 48.48 44,530 39.20 130,223 45.32ZUNK bonds* 23,830 30.69 32,672 33.98 31,612 27.83 88,114 30.66Eurobonds 2,425 3.12 4,426 4.61 12,381 10.90 19,232 6.69Global bonds 11,502 14.83 12,288 12.78 24,828 21.86 48,618 16.92Total 77,635 100.00 96,143 100.00 113,594 100.00 287,372 100.00

TotalTypes of government securities

UPF OPF VPF

Maturity Structure of Government Maturity Structure of Government Securities Held by PFsSecurities Held by PFs

Maturity Total volume Share up to 1 year 1,185 0.41 1 to 5 years 43,503 15.14 more than 5 years 242,684 84.45 Total 287,372 100

Currency Exposition of the PFs’ Investment Currency Exposition of the PFs’ Investment Portfolio throughPortfolio through 31.12.2003 31.12.2003

thousand BGN

rel. sharethousand

BGNrel. share

thousand BGN

rel. share

TOTAL INVESTMENTS, incl. 109,610 100.00% 139,529 100.00% 238,919 100.00%

Denominated in BGN 50,454 46.03% 67,506 48.38% 97,846 40.95%

Denominated in Euro 48,343 44.10% 64,441 46.18% 127,487 53.36%

Denominated in US dollars 10,813 9.86% 7,580 5.43% 13,586 5.69%

Total for UPFTypes of investments

Total for OPF Total for VPF

New Investment Challenges in Pension Insurance, 15.04.2004 Developments and Trends in Fully-Funded...

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