inTervieW - Green Cross Publishing

26
finance
How safe are your
investments?
Across Europe insurers have been busy preparing for
Solvency II legislation and how does this affect little
old me you ask...
With all the noise about
pensions and tax
season, I wanted this
month to call attention
to two things. Both of
which are very much in
the space I find myself in
at the moment.
Firstly its about looking at how I can work
with clients to protect what they have. As many
of you may recall, last year we launched our
book Surviving to Win, which was our attempt
to bring solutions in a world where everyone is
quick to define the problems but slow to bring
forward solutions. The release of the book has
lead us to renegotiating over €150m of debt
on behalf of investors who have been seeking
how to deal with banks around their own issues.
Unfortunately while we thought that this would
be a process that would be both logical and
sensible, neither has prevailed, as the banks
have been slow to be able to deal with their own
problems let alone that of the debt holder.
“
It is becoming
clearer to people
that: 'how safe are the
holders of my assets' is
as important a question
as 'how safe are my
investments'?
how To deal wiTh The Banks
Frankly, from an investor perspective it has been
both frustrating and difficult to handle even
when all of the potential solutions are presented
to them. While we have been getting the results
that work for all parties, it has been slower than
it needed to be. As a bye the bye, we are running
information evenings and a two day course on
dealing with the banks which has come about as
a result of people requesting us to do so. If you
want details, go to survivingtowin.com or drop
me an email.
Having got the infomercial out of the way,
I want to address the issues around dealing
with people with debt. That is ensuring that
we cover all of the ways that a client protects
themselves and their family. With this in mind
and considering the time of year, the question
of pensions comes to the fore. For many the
notion is that all pensions are equal subject
to management fees and fund manager. But
as the recent Brendan Murtagh case outlined,
the ability to put a trust structure in place is
an important measure in protecting assets for
potential creditors into the future. While I am not
suggesting that this is the case for many people,
it is becoming clearer to people that how safe
are the holders of my assets is as important a
question as how safe are my investments. When
you couple this thinking with the advent of a
new directive called Solvency II being introduced
within the EU on the 1st January 2013, it really is
time to take stock of your own position.
solvency ii?
Solvency II will govern capital adequacy
standards in the European insurance and life
insurance industry. It represents a complete
overhaul of the existing rules (Solvency I), which
date back to the 1970s. One of the pillars of the
new directive is the introduction of a risk-based
approach to reserving. In future, European
insurers will have to be able to pass a 1-in-200
years’ event stress test, which has been designed
to give the industry enough cushion to withstand
even the most severe of bear markets without
being forced to sell out in the darkest hour. Risky
asset classes such as equities, commodities and
other alternative investments will be assigned
much higher reserve requirements than less risky
asset classes such as bonds.
While that is the more academic version of
the story, in layman’s terms (or in my simple
thinking), it means that insurance companies
(and pension funds) need to hold a far greater
portion of their assets in bonds than they needed
to do so before. While it can be argued that
the regulation is not specific to pension funds,
the fact that it impacts insurance companies
does affect those people who do not operate
their own self administered pensions and rely
on insured arrangements. It has been a while
since I had a bit of a rant about the need for
taking charge of all that we do. Whether it is
understanding how to handle our new world of
high net debt and low net assets or deciphering
how we can mind our own investments, it has
IAIN CAHIll
issue 10 volume 12 • novemBeR 2010
iain Cahill aCCa Mba QFa
Director
art of Wealth Ltd.
Dunlair House
old athlumney
navan
Co. Meath
Mob: 087 2411371
Tel: 046 9072824
never been a more important time to look at
the small print in how we manage our wealth.
If you use insurance companies as a means
of managing your pension funds, below is an
interesting break down of where pension funds
are currently invested after the recent melt down.
Across Europe insurers have been busy
preparing for when the new rules to come into
effect. As you can see from chart 1 below, the
average exposure to equities is already very low
– around 7 per cent according to Deutsche Bank.
As Solvency II (unlike Solvency I) penalises the
insurer if there is a duration mis-match between
assets and liabilities, forced buying of bonds
from the insurance sector may have been a major
feature in the bond market rally of the past six
months.
Is it any wonder that the insurance companies
are moving away from the with profits
guarantees and in particular have you noticed
that any projections that you may be receiving
on your pension statements now talk about a
projected growth of 4.8 per cent as opposed to
the heady days of 8 per cent. I don’t know about
you, but even at my age it would take too long
to make any headway on my retirement needs if
that is the best Gross return on offer.
Please please please heed the need to be
thinking protection of assets and the need
for more informed control of the investment
strategy. Secondly, if your own debt is a challenge
and you need to understand more about what
to do about it, come online or drop me an email
and learn to be in charge. Finally, is now a good
time to invest in Irish property? I am beginning to
think so if you get the location right. Remember
you heard it here first…Happy and safe investing.
Chart 1: european insurance industry asset allocations
Source: Deutsche Bank