First, let's set the background. You have to understand that the stock market has seen some Finnish stock plunged from a range of 10 to 30% in October alone, while most shares have lost around 30 - 60% of their value since the beggining of the year.
So I did some search, quick one - you are welcome to share more elements....
"The €23.4bn Ilmarinen Mutual Insurance Pension Company has reported a negative return of -9.4% for the first nine months of 2008 and a loss of €2.3bn in the third quarter, but its solvency ratio could improve under Finnish government proposals to relax regulations.
It appears Ilmarinen was not alone in suffering significantly losses within the last three months as the Finnish government is now discussing a Bill to temporarily reform the solvency regulations for employment pension companies to make them more "flexible"."
Make them more flexible..."Flexible" Damn, for some reason, I don't like this word... Does that mean that the losses made during October, made them insolvent or about to be? I don't have an answer for that, but if they have to pass a law to change the rules on the fly, it clearly state of emergency.
"The Finnish government said as the market value of Finnish shares owned by pension companies have fallen sharply, the solvency rates of the firms have also come down fairly quickly, so the proposals are designed to avoid pension companies having to divest from stocks in a way that would disadvantage Finnish stock prices."
So we don't want to see the
The combination of "Free market" and State intervention might work if we are in the position of a correction not a fundamental (technically and ideologically) readjustment. Should it be the latter, the consequence could be dire...
"The Bill, which is designed to strengthen private sector employee pension insurers' solvency, is expected to come into force as soon as possible and the law could remain in place until the end of 2010.
As a result of the recent market volatility and the poor returns, Ilmarinen saw the value of its investments fall from €25.7bn at the end of June 2008, to €23.4bn at the end of September, a drop of €2.3bn in just three months. (See earlier IPE article: Ilmarinen loses €1.7bn in H1)
Ilmarinen has revealed its solvency capital reduced from 22.3% of technical provisions at the end of June to 15.5% at the end of September, while its solvency ratio had dropped to 1.3 times the minimum requirement, compared with 1.9 times held three months earlier."
"However, Jaakko Tuomikoski, deputy chief executive and president of finance and risk control at Ilmarinen, said even though the financial market crisis "worsened to unprecedented dimensions" in October, the solvency capital of the pension fund has remained above the solvency margin."
It looks like Ilmarinen (you can put Varma, the other pension Fund, in the same bag), is flirting with insolvency. Their Portfolio contain as well property, and as we all know , property price have turned and started to decline...