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Insurance Companies' Pension Plans Funding Fell in 2008

Source: Business Insurance

Posted on 26 Aug 2009

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The average funded status of pension plans sponsored by insurance companies declined significantly last year, but the funding shortfall is not yet a major concern, according to a report released by Fitch Ratings.

In the report, which was released by Fitch Ratings yesterday, Fitch found that plans sponsored by 37 insurers were, on average, 73.4% funded at the end of 2008, down from 95.8% in 2007.

That decline is largely a result of the fall in the equities markets, which walloped the value of pension plan assets. For example, at the end of 2008, plans sponsored by the insurers held $65.8 billion in assets, down from $80.2 billion in assets the plans held in 2007, according to the study.

Despite the decline in funding levels, Fitch said it does not view the underfunded status of insurers’ plans “as a material industry concern at this time.”

Fitch said the expected cash contributions insurers will have to make to help shore up their plans will not pose a significant liquidity issue. For example, the required cash contributions to the plans, which Fitch estimates will be at least $2.1 billion this year, amount to less than 0.46% of the insurers’ equity.

Funding levels of the insurers’ plans varied considerably. At the high end, Prudential Financial Inc.’s pension plans were, on average, 120% funded, followed by Pacific Life Corp., whose plans were 105% funded.

On the other hand, according to Fitch, First American Corp.’s pension program was 36% funded, followed by National Life Group, at 49%.