The Los Angeles County Employee Retirement Association (LACERA) provides pension benefits to 73,385 pensioners nationwide, with more than 60,000 residing in California and more than 42,000 residing in Los Angeles County. The benefits those pensioners receive ripple throughout the economy, affecting various industries and job sectors. In 2021, these pensioners generated a total economic output of $2.7 billion and supported thousands of jobs in Los Angeles County, according to a report just released by Beacon Economics titled “Economic, Fiscal and Social Impacts of LACERA Pensioners.”
With retirement security becoming a pressing national issue, the report that LACERA commissioned found that defined benefit plans, such as those offered by LACERA, are more efficient, secure, and provide more value than defined contribution plans like 401(k)s in delivering sustainable retirement benefits. The pooled assets of a defined benefit plan offer superior financial protection compared to defined contribution plans, as they remove longevity risk, offer inflation protection, and provide death benefits while delivering a secure and steady income to the beneficiaries. The United States Census Bureau found that the nation’s rapidly aging population has seen a 31 percent increase in those aged 65 and older from 2011 to 2021.
A new report by Hong Kong Watch have found that a number of pension funds may be passively invested in at least 13 China based companies where there is credible evidence of involvement in Uyghur forced labour programs and construction of internment camps in Xinjiang.
As part of the report, Hong Kong Watch found that major asset managers are exposed passively to these companies as a result of their inclusion on Morgan Stanley Capital International’s Emerging Markets Index, China Index and All World Index ex-USA.
Commenting on the release of the report, Johnny Patterson, co-founder and a research fellow at Hong Kong Watch, said:
“13 companies on MSCI’s emerging markets index are either known to have directly used forced labour through China’s forcible transfer of Uyghurs, or been involved in the construction of camps. Given this Index is the most widely tracked Emerging Markets index in the world, it raises serious questions about how seriously international financial institutions take their international human rights obligations or the ‘S’ in ESG.
Our view is that firms known to use modern slavery or known to be complicit in crimes against humanity should be classed alongside tobacco as ‘sin stocks’, or stocks which investors do not touch. Governments have a duty to signal which firms are unacceptable, but international financial institutions must also be doing their full due diligence. It is unacceptable that enormous amounts of the money of ordinary pensioners and retail investors is being passively channelled into firms that are known to use forced labour.”
On Tuesday, Hong Kong Watch’s co-founder and trustee, Aileen Calverley, and Director of Policy and Advocacy, Sam Goodman, gave evidence to the Special Committee on the Canada–People’s Republic of China Relationship on the exposure of Canadian pension funds to Chinese stocks and bonds.
Hong Kong Watch has previously written extensively on the question of ESG, business, human rights, and Canadian pension funds exposure to Chinese companies linked to gross human rights violations, including the internment camps in Xinjiang.
In his remarks, Sam Goodman, discussed why China should be considered an ESG investment risk, recommending that:
Lawmakers consider sensible regulations to define ESG, label China as an ESG risk, and introduce a blacklist like the USA to restrict investment in Chinese firms with questionable human rights, environmental, and governance credentials.
In her remarks, Aileen Calverley discussed the risk of pension fund investments in China in the event of sanctions, recommending that the Government:
Include a China Country Risk Analysis in the Indo-Pacific Strategy.
Encourage publicly controlled pension funds to avoid exposure in China.
Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.
During October, the Milliman 100 PFI funded ratio rose from 108.8% on September 30 to 112.8% on October 31, reaching a new high for the year. The change was driven by a 35-basis-point hike in the monthly discount rate. The PFI projected benefit obligation decreased to $1.266 trillion as the discount rate rose from 5.36% in September to 5.71% for October—the highest rate since March 2010. This increase helped to offset October’s flat investment returns of 0.21%, which lowered the Milliman 100 PFI asset value by $4 billion.
An active year for mergers and acquisitions in 2021 and large block reinsurance transactions led to a 41% increase in admitted assets owned by private equity firms in 2021, according to a new AM Best special report.
In its Best’s Special Report, “Private Equity Continues to Make Inroads in Insurance Industry,” AM Best states that as life/annuity insurers’ earnings have been pressured, with capital that has been strained due to reserve adjustments, insurers’ willingness to divest businesses has been bolstered; private equity firms have been eager to step in. With the year-over-year increase in admitted assets to $849.6 billion, private equity insurers now have a 10% share of the U.S. life/annuity’s total assets, more than double the share from five years ago.
“More-experienced private equity firms have gotten comfortable managing insurance assets while adhering to constraints imposed on their portfolios, such as regulatory compliance and rating agency capital charges on asset and liability risks, ALM matching requirements and liquidity concerns,” said Jason Hopper, associate director, industry research and analytics. “As these firms take advantage of the more-permanent capital and premium flows afforded them through ownership of an insurer, there is less of a need to look for a quick exit from their investment.”
The report notes that private equity firms have entered the insurance market in one of two ways: by controlling an insurer through an equity investment and buying or reinsuring blocks of business from other insurers, while influencing the insurer’s investment management strategies to earn higher yields; or by working with insurers as a partnership or outsourced chief-investment officer, whereby the private equity firm manages a portion of the insurer’s assets for a fee.
Even with their more diversified bond portfolios, less than a third of private equity insurers have exposures to below-investment-grade bonds greater than the industry average of 5.9%, according to the report. The investing strategies of private equity insurers have helped them consistently generate a higher net yield since 2017, and most continued to outperform the individual annuity writers’ composite in 2021. The competitive pricing private equity insurers can offer puts more pressure on traditional insurers that lack the same scale with more-conservative crediting rates.
Insurance Commissioner Ricardo Lara should reject Allstate’s proposed $165 million auto insurance rate hike and its two-tiered job- and education-based discriminatory rating system, wrote Consumer Watchdog in a letter sent to the Commissioner today. The group called on the Commissioner to adopt regulations to require all insurance companies industrywide to rate Californians fairly, regardless of their job or education levels, as he promised to do nearly three years ago. Additionally, the group urged the Commissioner to notice a public hearing to determine the additional amounts Allstate owes its customers for premium overcharges during the COVID-19 pandemic, when most Californians were driving less.
Overall, the rate hike will impact over 900,000 Allstate policyholders, who face an average $167 annual premium increase.
Under Allstate’s proposed job-based rating plan, low-income workers such as custodians, construction workers, and grocery clerks will pay higher premiums than drivers in the company’s preferred “professional” occupations, including engineers with a college degree, who get an arbitrary 4% rate reduction.
The New York State Common Retirement Fund is committing another $350 million to two investment funds through its in-state private equity investment program, fund trustee and state Comptroller Thomas P. DiNapoli recently announced.
“The in-state program has helped hundreds of New York businesses add and retain thousands of jobs and grow while achieving solid returns for the retirement system members and their beneficiaries that rely on the pension fund for their retirement security,” DiNapoli said. “We’ve committed more than $2 billion through this program to invest in New York state companies, and I’m proud to continue building on our successful track record.”
The fund will provide $50 million in additional capital to the Hudson River co-investment fund III, which it already invests in, and another $300 million in the new Hudson River co-investment fund IV. The funds make equity co-investments (investments alongside a lead sponsor) in growing New York-based companies.
Arlington, VA – Two newresearch reports designed to guide the insurance industry toward proactive, quantitative solutions to identify, measure and address potential racial bias in insurance pricing were published by the Casualty Actuarial Society (CAS) today.
“These two new reports in our CAS Research Series on Race and Insurance Pricing continue to provide additional insight into industry discussions on this topic,” said Victor Carter-Bey, DM, CAS chief executive officer. “We hope with this series to serve as a thought leader and role model for other insurance organizations and corporations in promoting fairness and progress.”
As the professional society of actuaries specializing in property and casualty insurance, the CAS is committed to diversity, equity and inclusion in actuarial work. To this end, the Society is releasing a series of four CAS Research Papers, which support the CAS’s Approach to Race and Insurance Pricing. This approach was adopted by the CAS Board of Directors in December 2020 and includes four key areas of focus and goals: basic and continuing education, research, leadership and influence, and collaboration. Each paper in the series addresses a different aspect of race and insurance pricing as viewed through the lens of property and casualty insurance.
Defining Discrimination in Insurance. This report examines terms that are being used in discussions around potential discrimination in insurance, including protected class, unfair discrimination, proxy discrimination, disparate impact, disparate treatment, and disproportionate impact. The paper provides historical and practical context for these terms and illustrates the inconsistencies in how different stakeholders define them. It also describes the potential impacts of these definitions on actuarial work.
Understanding Potential Influences of Racial Bias on P&C Insurance: Four Rating Factors Explored. The paper examines four commonly used rating factors to understand how the data underlying insurance pricing models may be impacted by racially biased policies and practices outside of insurance. The goal is to highlight the multi-dimensional impacts of systemic racial bias, as it may relate to insurance pricing. The four factors included in the report are: Credit-Based Insurance Score (CBIS), geographic location, homeownership and Motor Vehicle Records.
These four research reports are just one way the CAS supports evolving actuarial practices and strengthens the knowledge of its members. The papers demonstrate the Society’s recognition that actuaries—who are responsible for setting insurance rates—must be a voice in an ever-evolving dialogue. The CAS understands that this work is critical to maintaining the Society and its members’ public trust.
Pension systems said earnings on investments accounted for 68% of overall pension revenues in their most recent fiscal year. Employer contributions made up 23% of revenues, and employee contributions totaled 8%.
The Covid-19 pandemic accelerated efforts by public pension systems to expand their communications capabilities. In all, 78% offered live web conferences to members during 2021, up from 54% a year earlier.
Pension funds that participated in the survey in 2020 and 2021 reported that their funded levels rose to 72.3%, from 71.7%. Overall, pension funds reported a funded level of 74.7% for 2021. While funded levels are not as important to pensions’ sustainability as steady contributions are, the trend is positive.
The inflation assumption for the funds’ most recent fiscal year remained steady at 2.7%. These assumptions were in place in the midst of an acceleration in the rate of inflation, which reached 7% at the end of 2021, from 1.4% a year earlier, as reported by the Bureau of Labor Statistics.
WASHINGTON, D.C. — The Pension Benefit Guaranty Corporation (PBGC) today announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.
“The American Rescue Plan provides funding to severely underfunded pension plans that will ensure that over three million of America’s workers, retirees, and their families receive the pension benefits they earned through many years of hard work,” said PBGC Director Gordon Hartogensis. “These benefits are critical to the economic security of so many retirees and their families.”
The American Rescue Plan (ARP) Act of 2021 (P.L. 117-2) — a historic law passed by Congress and signed by President Biden on March 11, 2021 — contains provisions to provide an estimated $94 billion in assistance to eligible plans that are severely underfunded. Additionally, it assists plans by providing funds to reinstate previously suspended benefits. ARP also addresses the solvency of PBGC’s Multiemployer Insurance Program, which was projected to become insolvent in 2026.
The interim final rule sets forth what information a plan is required to file to demonstrate eligibility for SFA and the formula to determine the amount of SFA that PBGC will pay to an eligible plan. ARP authorizes PBGC to prioritize SFA applications of plans in specified groups, and the interim final rule identifies the priority order in which such plans are permitted to apply. The interim final rule also outlines a processing system, which will accommodate the filing and review of many applications in a limited amount of time. In addition, it specifies permissible investments for SFA funds and establishes certain restrictions and conditions on plans that receive SFA.
The interim final rule is posted on PBGC’s website today, July 9, 2021. The rule is also on public inspection today at FederalRegister.gov and is scheduled for publication in the Federal Register on July 12, 2021. PBGC has included a 30-day public comment period in this rulemaking from the date of publication in the Federal Register. All interested parties may submit their comments, suggestions, and views on the rule’s provisions here: firstname.lastname@example.org or https://www.regulations.gov.
Additional information, including Frequently Asked Questions, is available at PBGC.gov/arp.
A new report provides a comprehensive overview of the many aspects of public sector hybrid retirement plan designs. The report finds that some shifts to hybrid designs were made without a proper evaluation of the long-term implications of the plan changes. In contrast, other hybrids are well-thought-out and more likely to provide retirement security to employees, enabling public employers to recruit and retain a qualified workforce.
A hybrid is not one particular plan design, but instead is an umbrella term capturing a wide range of different plan designs. Some hybrids are defined benefit (DB) pensions with risk-sharing provisions, while others blend attributes of DB and defined contribution (DC) plans. Each of these plan designs offers tradeoffs in terms of retirement benefits, risks, and costs.
Author(s): Dan Doonan, Elizabeth Wiley
Publication Date: 10 May 2021
Publication Site: National Institute on Retirement Security
As Athene takes control of pension plan assets, it seeks to profit by earning more from investment returns than it is required to pay out to recipients. Athene uses Bermuda-based reinsurance subsidiaries to reinsure most deposits. Apollo manages most of Athene’s assets in exchange for fees. Apollo invests some of Athene’s assets in loans and structured debt products originated or securitized by Apollo affiliates.
Apollo Global Management created Athene in 2009 and has managed its assets since its inception. On March 8, Apollo announced its plan to acquire and merge with Athene.
UNITE HERE’s new website will provide information and resources to the beneficiaries of plans taken over by Athene. It includes facts about the recent JCPenney transaction, links to reporting on Athene’s investment practices, and contact information for relevant regulatory agencies. Beneficiaries can use the site to sign up for updates.