UNICREDITO ITALIANO
description
Transcript of UNICREDITO ITALIANO
UNICREDITO ITALIANO Alessandro Profumo - CEO
UBM 3rd ITALIAN CONFERENCE - FINANCIAL SECTOR
Milan - November 8th, 2001
“PENSION REFORM: A GROWTH DRIVER FOR THE FUTURE?”
2
PENSION REFORM: A GROWTH DRIVER IN THE FUTURE ?
Government has given up important direct responsibilities in assuring high living standards to retirees. Now households need to review the way they allocate their savings
Financial institutions have a fundamental role and a responsibility in this process. This responsibility has become even greater now, as investment opportunities enter a more difficult term
Given that, can pension reform become a growth opportunity for Italian banks and insurance companies ?
3
Structural impacts of the Italian Pension Reform
Perspectives for the Italian pension fund industry
UCI’s integrated approach to the pension business
Conclusions
Agenda
4
IN THE LAST DECADE PERSPECTIVE PENSION BURDEN ON PUBLIC FINANCES FORCED STATES TO REDUCE THEIR GENEROSITY
The “ageing population” forced most governments to progressively reduce the benefits paid out for public
pensions making the case for households to divert a larger sum of their earnings for precautionary purposes
Projected public spending as percentage of GDP
0
5
10
15
20
25
1995 2000 2010 2020 2030 2040 2050 2060 2070
% o
f G
DP
Italy Germany France Japan Canada USA United Kingdom
Source: OECD
5
Pension wages calculated
using a life earnings
related method
57 years of age and 35
years of contribution or
40 years of contribution
Pension wages calculated
using a mixed life earnings
/contributions model
57 years of age and 35
years of contribution or
40 years of contribution
Older workers
(more than 18 years
of contribution)
Middle Age workers
(less than 18 years
of contribution)
Pension wages calculated
using a contributions based
model
Last 5 yrs average salary
Last month’s salary
Last 10 yrs average income
Years of contribution for
eligibility
Seniority Pensions: Min. years of
contribution for eligibility
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57-65
65 men, 60 women
65
60 men, 55 women
65
65 men, 55 women
MAJOR CHANGES INTRODUCED IN ITALY BY THE AMATO AND DINI REFORMS...
PRE 1992
Retirement Age
Source: OECD
Pension wages
Private employees
Public employees
Self employed
AMATO REFORM - 1992Private employees
& Self employed
Public employees
DINI REFORM - 1995
Young workers
65 men, 60 women
65 men, 60 women
20
20
5
20
20
35
20 men, 15 women
35
Increasing for
public employees
-
Average of whole working
life earnings, re-evaluated
at 1% annually
6
... OPENED THE WAY FOR PRIVATE MARKETS…
PENSION REFORM DEBATE WENT ALONG WITH THE DEFINITION OF THREE PILLARS
I Pillar - PUBLIC PENSION:generally financed on a pay-as-you-go basis and compulsory
II Pillar - OCCUPATIONAL PENSIONS:pensions generally set up by employers or a trade union and mostly administered by private institutions
III Pillar: PERSONAL SAVINGS AND RETIREMENT PLANS: set on an individual and voluntary basis, fully funded
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…AND MADE THE CASE FOR MORE PRECAUTIONARY SAVINGS
IN ITALY THE ADJUSTMENTS INTRODUCED TO THE FORMER PAY-AS-YOU-GO SYSTEM WITH THE AMATO (1992) AND DINI
(1995) REFORMS HAS OPENED UP THREE MAIN ISSUES:
Social security gap in the case of younger cohorts
Retirement gap for middle and high-income households
Loss of purchasing power of older retirees compared to younger retirees due to the fact that pension benefits are not indexed to GDP growth (like contributions), but to the sole cost of living
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SOCIAL SECURITY GAP: YOUNG COHORTS VERSUS OLD COHORTS
20
30
40
50
35 36 37 38 39 40
1942
1952
1962
1972
1982
SOCIAL SECURITY GAP: YOUNGER COHORTS RECEIVE A MUCH LOWER PUBLIC PENSION BENEFIT RELATIVE TO THEIR FINAL PAY
PER
CEN
TA
GE G
AP
BETW
EEN
PA
Y
AN
D P
EN
SIO
N B
EN
EFIT
S
YEARS OF CONTRIBUTION
Younger cohorts show a larger social security gap compared to older cohorts. The shorter the contribution
period, the larger the disadvantage
Source: E. Fornero, “L’Economia dei Fondi Pensione”, 1999
YEAR OF BIRTH
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EMPLOYEES
RETIREMENT GAP: LOW INCOME VERSUS MIDDLE AND HIGH INCOME HOUSEHOLDS
01020304050607080
57 58 59 60 61 62 63 64 65
30.000 Euro 60.000 Euro 100.000 Euro
01020304050607080
57 58 59 60 61 62 63 64 65
RETIR
EM
EN
T G
AP
%R
ETIR
EM
EN
T G
AP
%
AGE OF RETIREMENT
AGE OF RETIREMENT
SELF-EMPLOYED WORKERS
Current Pillar II schemes are far from succeeding in closing the gap between last pay and retirement income in the case of middle and high-income individuals
Self-employed workers more penalised than employees
AVERAGE YEARLY INCOME
Source: PGAM Research30.000 Euro 60.000 Euro 100.000 EuroAVERAGE YEARLY INCOME
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Pensions indexed to inflation (and not to real wages) imply that the farthest in time the retirement date, the larger the gap with new retirees. According to our simulation models, assuming a real wage growth of 2%, an individual
who retired 10 years ago would receive a benefit 16% lower than a new retiree with the same final wage and years of contributions. The gap widens
to 38% in the case of an individual who retired 25 years ago
PURCHASING POWER AND PENSIONS INDEXED TO THE COST OF LIVING
0
20
40
60
80
100
120
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
YEARS OF RETIREMENT
PENSIONS INDEXED TO INFLATION IMPLY A SUBSTANTIAL LOSS IN PURCHASING POWER OF OLD VS NEW RETIREES, WHOSE BENEFITS ARE BASED ON NOMINAL WAGES
PU
RC
HA
SIN
G P
OW
ER
ER
OS
ION
FO
R N
EW
RETIR
EES
%
Yearly real wage growth: 2%
Source: PGAM Research
KEY ASSUMPTION:
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PENSION FUND INDUSTRY IS STILL IN ITS INFANCY IN ITALY
0
20
40
60
80
100
USA Netherlands UK Canada Japan France Germany Italy
%
PENSION FUNDS AS PERCENTAGE OF GDP
The Pension Funds industry is still at its infancy in Italy, representing just 1.1% of total household financial assets (11% including life insurance
schemes) and just 3% of GDP in 2000
The picture contrasts sharply with that of more developed capital and savings markets like USA, UK and the Netherlands where pension funds
already represent over 80%of GDP
12
Structural impacts of the Italian Pension Reform
Perspectives for the Italian pension fund industry
UCI’s integrated approach to the pension business
Conclusions
Agenda
13
1996 Households’ total financial assets: Euro 1,878 bn
2000 Households’ total financial assets: Euro 2,602 bn
IN THE LAST FOUR YEARS PENSION PRODUCTS DID NOT FULLY BENEFIT FROM THE STRONG GROWTH OF TOTAL FINANCIAL ASSETS IN ITALY ...
Italian savings market witnessed an unprecedented growth in the past 4 years (CAGR 8.5%). The development of capital markets went hand in hand with households progressively reducing their risk aversion, as shown by the rise of the portion of assets diverted to mutual funds and shares
Source: Bank of Italy
Life/Pensions: 10%Other: 3%
Deposits: 30%
Bonds: 30%Mutual Funds: 5%
Equities: 22%
Life/Pensions: 11%Other: 2%
Deposits: 25%
Bonds: 19%Mutual Funds: 18%
Equities: 25%
+8.5%CAGR
1996-2000
Pension funds could scarcely benefit from this growth, mainly due to legal uncertainties and lack of products
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Our models suggest that pensions funds will account for at least 25% of total financial assets from the current 1.1% and pension funds+life insurance will grow from the current 11% to 40%
…BUT ARE SET TO EXPAND RAPIDLY IN THE NEXT 20 YEARS ...
0 2,000 4,000 6,000 8,000
2000
2020E
HOUSEHOLD FINANCIAL ASSET MIX IN 2000 AND 2020E
12% 15% 25% 48%
71%18% 10%
1%
Mutual Funds Life Insurance Pensions Funds Other assets
Even if Italian households are likely to keep a more cautious view on financial markets, in 20 years we believe they will likely tend to show an asset mix closer to those markets where the pension fund industry is already a reality (USA, UK, The Netherlands)
Source: PGAM Research
Euro bn
15
… AND TO BECOME ONE OF THE FASTEST GROWING ASSET CLASSES
PENSION FUND INDUSTRY SET TO GROW STRONGLY IN THE NEXT 20 YEARSEuro bn
This will be due to the diversion of a larger portion of savings to pension funds and life insurance products and to a partial switch of assets from other investment categories
UCI estimates that the Italian pension fund market will total Euro 2,000 bn in 2020 (Euro 3,200 bn considering also life insurance). This would imply a 2001-2020 CAGR of 23.5% for the pension fund industry (13% CAGR taking into account also life insurance)
+23.5%
CAGR2001-2020
0
500
1,000
1,500
2,000
2,500
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: PGAM Research
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Huge increase in volatility mainly due to: Higher households’ risk propensity The “Internet bubble” Quick diffusion of derivatives
THE UPWARD TREND OF VOLATILITY...
Source: UBM Research on Datastream data
50
70
90
110
130
150
170
190
210
230
oct-92
apr-93
oct-93
apr-94
oct-94
apr-95
oct-95
apr-96
oct-96
apr-97
oct-97
apr-98
oct-98
apr-99
oct-99
apr-00
oct-00
apr-01
oct-01
EQUITY AND BOND MARKETS IMPLICIT VOLATILITY TRENDS IN THE LAST 10 YEARS
S&P500 Implicit Cluster Volatility Re-based
JP Morgan Global Bonds Implicit Cluster Volatility Re-based
BASE19.10.1992=100
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... AND THE RECENT FINANCIAL MARKETS TURMOIL MADE IT CLEAR THAT INVESTING IN PURE EQUITY PRODUCTS IS NOT SAFE FOR PENSION PURPOSES
EQUITY MARKETS PERFORMANCE
Source: Datastream
SHIFTING OF HOUSEHOLD SAVINGS INTO A LONG-TERM PERSPECTIVE BECOMES A MUST
80
100
120
140
160
180
200
jan
-98
ap
r-9
8
jul-
98
oct-
98
jan
-99
ap
r-9
9
jul-
99
oct-
99
jan
-00
ap
r-0
0
jul-
00
oct-
00
jan
-01
ap
r-0
1
jul-
01
oct-
01
Dax index S&P composite Milan Comit
Unlucky retirees
Lucky retirees
COULD IT HAPPEN AGAIN?
Long-term financial market
growth estimates have been cut by the majority of analysts and strategists
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INCREASED RISK AND RISK AVERSION REQUIRE PROFESSIONAL SERVICES
HOUSEHOLDS WILL ASK MORE THAN IN THE PAST FOR PROFESSIONAL “ADVICE” ESPECIALLY IN THE CASE OF LONG TERM INVESTMENTS
The economic outlook and the recent political developments could seriously affect the financial markets in the short and medium term
Increased risk and risk aversion, due to higher volatility and divergent trends across the various categories of financial assets, make a professional approach to financial markets more relevant than in the past
Household needs for professional advice, sophisticated products and ALM techniques are even more urgent when long term investments are aimed at guaranteeing an appropriate standard of living after retirement
THIS IS THE NEW CHALLENGE AND
OPPORTUNITY FOR FINANCIAL
INSTITUTIONS
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Structural impacts of the Italian Pension Reform
Perspectives for the Italian pension fund industry
UCI’s integrated approach to the pension business
Conclusions
Agenda
20
Proven long term results, based on sound investment process and active
management
UCI’S PATH TO DELIVERING LONG TERM RESULTS IS CONSISTENT WITH THE EXPECTATIONS FOR RETIREMENT SAVINGS
a strong and disciplined Asset Management Factory the investment bank’s ability to provide innovative
risk protection a widespread efficient distribution network
Risk Management culture
2,924 branches to serve more than
6.5 mln customers
IN THE NEW PENSION FUND MARKET UCI WILL LEVERAGE ON THESE THREE PILLARS:
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Stock picking based on bottom-up research and fundamental analysis has proved to be winning in the long term
PIONEER: EXCELLENT LONG TERM RESULTS THROUGH A CONSISTENT APPROACH...
BOTTOM-UP RESEARCH ...
ACTIVE MANAGEMENT ...
Active management can better identify those assets with above average growth potential on a medium-to-long term basis
32 Analysts61 Portfolio Managers25 Quantitative
Researchers3 Global Research Hubs:
Boston, Dublin, Milan
... THANKS TO A FACTORY BUILD UP TO SUPPORT OUR STRATEGY
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... AS DEMONSTRATED BY OUR US FLAGSHIP FUND PERFORMANCE
PIONEER FUND PERFORMANCE$10,000 initial investment on 3/1/28 (POP Class A Shares Only)
*Reflects deduction of the maximum sales charge of 5.75% and assumes reinvestment of all distributions at net asset value. Reflects Class A Share performance. Sources: Towers Data.
Assumptions:Investment period: 1/3/28 (Fund inception 13/2/28) through 31/8/01.$10,000 initial investments in Pioneer Fund and the S&P 500.
3/28 3/48 3/783/583/38 8/013/68 3/88
$10,000
Pioneer Fund$76,644,617
S&P 500$13,367,889
Pioneer Fund Class A Shares Public
Offer Price*Net Asset
ValueS&P 500
+15.6% +14.3% +13.3%+10.1% +8.0% +7.1%-16.8% -21.6% -24.3%
5 YEARS3 YEARS1 YEAR
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SECOND STEP: capital guaranteed segregated accounts and life products
UBM & TRADINGLAB: ENGINEERING RISK PROTECTED EQUITY&FUND LINKED PRODUCTS ...
FIRST STEP: fund and equity linked notes with capital protection
PRODUCT RANGE
Base 108
Valore Più
Cap. Premium
Linea Protetta
UniStar
ONE COMMON CONCEPT
Freedom for the asset manager; equity up to 60% of total capital invested
Low capital absorption (according to B.I. standards)
Higher equity content of AUM Higher market market share in wealth management
ADVANTAGES FOR THE WHOLESALER:
Spinnaker
All Banks
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... THAT HAVE PROVEN TO BE CLEARLY SUCCESSFUL IN A RISKIER SCENARIO
ITALIAN BANKING+ +
CAPITAL GUARANTEED PRODUCTS: EURO 4.87 bn CUMULATED NET INFLOWS AS OF 31.10.2001
260.4200
400
600
800
1,000
(Euro mln)
0
208.0
774.1
298.5
197.3 236.0
213.6 171.9
MAY 2001
JUNE 2001
JULY 2001
AUG. 2001
SEPT. 2001
Segregated Accounts
Unit Linked
MAR 2001
464.7 381.0
250.6
15.9
Fund Indexed Notes
1,200
1,400
OCT. 2001
990.9
406.9
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OUR DISTRIBUTION EFFECTIVENESS IS CONFIRMED BY INCREASING MARKET SHARES IN BANCASSURANCE
UCI Insurance Portfolio
Dec. 2000
Market Share
%
Jan.-Sept.2001
UCI New Production
6,006
Source: UCI accounting and IAMA
Sept. 2001
Market Share
%
Market Share
%
UNIT LINKED
INDEX LINKED
PURE LIFE POLICIES
TOTAL
(Euro mln)
21.2% 8,962 22.8% 2,956 27.2%
207 0.7% 207 0.6% - N.m.
516 0.4% 540 0.4% 24 0.4%
6,729 3.8% 9,709 4.9% 2,980 12.6%
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IN 1H2001 UCI HAS SHOWN A CLEAR LEADERSHIP IN UNIT-LINKED AND TOTAL LIFE PREMIUMS NEW PRODUCTION
Source: IAMA
NEW PRODUCTION: UCI’s PREMIUMS WRITTEN MARKET SHARE (AS AT JUNE 2001)
7.7%6.7% 6.6%
5.9%4.4% 3.7% 3.4% 3.2% 2.7% 2.5% 2.1%
12.3%
Cred
itra
s - C
U vita
Sanp
aolo
vita
- life
Roma
Vita
Cattol
ica
Post
e Vit
a
Allean
za
Bnl V
ita
Cisa
lpin
a Pr
ev.
Carivi
ta
Med
iola
num
Mpv
ita
- Gro
wlif
e
Assib
a
Total Life Insurance Market
1.9%
9.1%
2.6%0% 1.5% 2.8% 4.0% 4.9%
2.0%4.5%
1.0%
25.7% Unit-Linked
Cred
itra
s - C
U vita
Sanp
aolo
vita
- life
Roma
Vita
Cattol
ica
Post
e Vit
a
Allean
za
Bnl V
ita
Cisa
lpin
a Pr
ev.
Carivi
ta
Med
iola
num
Mpv
ita
- Gro
wlif
e
Assib
a
27
New communication models:communication models currently used
in Italy are clearly inefficient
“NEW GENERATION” PENSION PRODUCTS REQUIRE A MORE FOCUSED AND DISTINCTIVE DISTRIBUTION MODEL
PFP approach redesign: new philosophy, new mechanism for
performance measurement, new targets
NEW PENSION PRODUCTS
DISTRIBUTION MODEL
New variables (besides wealth and income) becoming
more and more important
PERSONAL FINANCIAL PLANNING
COMMUNICATIONCUSTOMER
SEGMENTATION
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Fiscal Optimisation
Product Selection
From pure risk-profile analysis to focus on multiple variables (i.e. level of employment and of contributions paid to State-based pension programs)
Fiscal optimisation becoming not only a target, but also a key driver for product selection
From simulation based on time series to multi-stage statistical models, taking into account different financial market scenarios
Capital Guaranteed and Life Insurance products becoming a key pillar for an efficient asset allocation
Individual social security and retirement gaps measurement
Deep analysis of customers’ attitude towards “innovative” products (like “defined contribution” or capital guaranteed products)
PERSONAL FINANCIAL PLANNING REDESIGN
Customer Segmentation
Wealth-trend Simulation
Customer Understanding
29
Age
TRADITIONAL CUSTOMER SEGMENTATION IS NO LONGER ANSWERING
FROM TO
Coverage of the current living standards by State-based pension programs; growth potential of current income
Number of years for “pension savings” before retirement
Wealth
Income
Investment Attitude
Age
Wealth
Income
Investment Attitude
Current type and level of employment
Contributions paid to State-based pension programs
Family/Marital status
Assets available to cover the social security gap
Saving potential for pension products; possible fiscal benefits
Individuation of the asset allocation profile
State-pension rights matured and to be matured
Benefits to be reverted in case of death
30
Structural impacts of the Italian Pension Reform
Perspectives for the Italian pension fund industry
UCI’s integrated approach to the pension business
Conclusions
Agenda
31
WE THINK THAT PENSION REFORM WILL BECOME A GROWTH DRIVER IN THE FUTURE FOR THOSE INSTITUTIONS BEST EQUIPPED TO ATTRACT PENSION INVESTMENTS
The recent changes in the Italian pension system will force people to shift a large part of their savings to pension purposes, in order to fill social security and retirement gaps and to preserve the purchasing power of their pensions
Only financial institutions with strong financial engineering skills and higher understanding of households’ pension needs will be successful in exploiting the challenge of the new market
UniCredito is at the forefront in addressing this new challenge