CoronaVirus Hits Pension Assets & Stocks – Liability Deficit Reaches £80bn

Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from £57bn at the end of January 2020 to £68bn on 28 February. Liability values fell slightly by £2bn to £914bn compared to £916bn at the end of January. Asset values were £846bn (a fall of £13bn compared to the corresponding figure of £859bn at the end of January). Over the month the deficit was as high as £80bn as liability values have fluctuated.

Charles Cowling, Partner at Mercer, said: “Funding positions have declined this month as the impact of the coronavirus has sent shock waves through global markets. The outbreak is causing major disruption to international trade and supply chains, particularly in China, with the impact quickly spreading across Europe. The UK economy is expected to be hit imminently – giving the Chancellor of the Exchequer a tough first Budget in a few weeks.

“The outbreak will also have an unwelcome impact on interest rates. The outgoing governor of the Bank of England, said last week that a slowdown in our economy caused by coronavirus must raise the likelihood of a cut in interest rates. Some industries are already being hit hard by coronavirus and for many companies it is going to have a significant impact on financial results.  Trustees must be alert to the impact that coronavirus is having on the strength of many sponsoring employers.”

Mr Cowling added: “To add to these challenging conditions the Continuous Mortality Investigation has today announced that last year saw the highest reduction in mortality rates since 2011.

It is too early to tell whether this is a blip or a new trend, and how it might be affected by coronavirus, but it is likely to put pressure on pension liabilities. With asset values falling and pension liabilities increasing, 2020 may be a difficult year for actuarial valuations and trustees would be well advised to start their planning early.”

Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure. But data published by the Pensions Regulator and elsewhere tells a similar story.

Meanwhile, DBRS MorningStar offered these comments;

The current Coronavirus Disease (COVID-19) outbreak will likely trigger payouts for $132.5 million in pandemic catastrophe bonds sponsored by the World Bank Group’s (WBG) Pandemic Emergency Financing Facility (PEF). This funding will be channelled to eligible countries to mitigate the impact of the outbreak and might validate the need for market-based mechanisms to deal with pandemics.

This funding mechanism aims to provide additional financing to help the
world’s poorest countries respond to cross-border, larger-scale outbreaks by complementing, rather than replacing, the much wider role that IDA as well as other international organizations and donors play in supporting pandemic responses.

PEF funds can be used to finance the cost of response efforts during an outbreak. This includes, but is not limited to, the deployment of human resources, drugs and medicines, essential and critical lifesaving medical equipment and personal protective equipment, logistics and supply chain of critical supplies, nonmedical equipment, minor civil works (e.g., setting up temporary attention centres), services, transportation, hazard payments, and communication and coordination.

About alastair walker 12131 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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