Social insurance institutions and statutory health insurance funds in particular are currently in a dynamic and increasingly challenging situation: market consolidation has created complex and partly heterogeneous occupational pension landscapes.
These challenges are exacerbated by the fact that social security institutions and, in particular, statutory health insurance funds, must adhere to special regulations when dealing with pension obligations. For example, there are special accounting rules to be applied with regard to the recognition of age-related provisions.
Federal Social Security Office (BAS) regulation forces statutory health insurance funds to act
In accordance with the German Health Insurance Fund's Age-Related Provisions Ordinance (KK-AltRückV), statutory health insurance funds must set aside age-related provisions. This regulation from the Federal Social Security Office (BAS) is based on the 2010 reform of the health insurance landscape in Germany. Since then, things have changed for statutory health insurers. On the one hand, the ability of health insurance funds to file for insolvency has come into force due to the abolition of the guarantor's liability, which is accompanied by the Pension Protection Fund (PSV) obligation. Since the obligations arising from the existing pension landscapes with company pension plans (and, in some cases, commitments similar to those of civil servants) represent the greatest insolvency risk for health insurance funds, particular attention is paid to recognizing and assessing pension fund obligations. In our view, the current presentation in financial statements does not take sufficient account of this, which means that a detailed assessment of the real obligations and cash flows is of high operational importance.
As a result, health insurance funds are required by the regulations to present existing risks relating to their occupational pension plans in the annual financial statements in a way that is transparent and realistic, and must also implement appropriate risk management. Specifically, health insurance funds are required to build up sufficient capital stock by 2049 in order to meet their obligations. Among other things, an actuarial interest rate of 4.25% (maximum actuarial interest rate) is to be applied. Also to be taken into account are a salary trend of 1.5% and a pension trend of 1%, as well as a 4-year increase in life expectancy. Conversely, this means that the investment of paid-in contributions must generate a return of more than 4.25% in order for the corresponding amount of funding to be available in 2050. The guidelines issued by the BAS on the valuation of age-related provisions sets out how the corresponding obligations are to be valued. For example, the current status of provisions before and after 2050 must be calculated every 5 years so that the funding level is continuously monitored and transparent, as this is the only way to check whether the target can be achieved by 2050.
New options for action on an ongoing basis through dynamic further development
For health insurance companies, actuarial valuation is subject to ongoing development. As this occurs, the BAS is open to proposals from insurance professionals. The obligation to recognize retirement benefits in the balance sheet may be waived if an actuarial report proves that these funds are used exclusively to finance retirement benefits. This, in turn, can be accomplished by earmarking via a two-sided Contractual Trust Arrangement (CTA). The funds committed in this way are not accessible to third parties and therefore cannot be subject to a transfer obligation as part of a further reduction in reserves, as was the case most recently in the SHI Financial Stabilization Act.
Statutory health insurance funds must also observe the appropriate investment regulations when reinsuring their obligations. For example, the investment must be gilt-edged, which forces health insurance funds to invest very conservatively, e.g. in European government bonds.
What specifically statutory health insurers must now do with regard to occupational pension schemes
As a result, health insurers have the following to-dos:
- Fund existing commitments by 2050 at the latest, taking into account appropriate insolvency protection and investment guidelines
- New commitments must also be fully funded from the outset, and, in compliance with the investment guidelines, protected against insolvency
- Improve risk management in order to accommodate the increased risk management requirements imposed by accounting regulations and the BAS guidelines.
=> ongoing Control provisions: Use a realistic interest rate and correspondingly adjusted mortality table in order to obtain a realistic picture.
Get support from a specialized consultant
A specialized consultant helps public health insurers with achieving goals and effectively implementing regulations using the following services and products:
- Create a risk matrix across the pension landscape that takes into account legal, administrative and financial risks in order to identify areas for action.
- Prepare an annual report on the degree of financing or valuation of the asset side (before and after 2050 are to be considered)
- 25% represents the maximum interest rate. A "correct" interest rate can be determined by developing individual valuation methodologies. Furthermore, in order to obtain a realistic picture through the result, more suitable mortality tables can be applied by coordinating with the health insurance company.
- Create concepts for securely funding existing commitments using a two-sided trust model
- Disclose annual financial statements (no longer the case, or only partially)
- Balance sheet contraction
- Takeover administration using state-of-the-art IT and portal solutions.
- Look for an advisor who knows the special investment rules for the statutory health insurance funds and, if necessary, works with asset managers who can implement them with regard to investment strategy.
The advantages of collaborating with adesso
Social insurance agencies and statutory health insurance companies that collaborate with adesso obtain the greatest degree of security possible. The combination of a high level of both bAV and industry expertise in conjunction with state-of-the-art software and system solutions provides added value.
For example, for many years we have specialized in products and services for social insurance carriers, and have built up an extensive network through our memberships in specialist committees. This way we are always well-informed about upcoming legal changes.
Our valuation methodologies and solution approaches have been coordinated and developed with the renowned and specialized auditor Dr. Ralf Kohlhepp.
Today, company pension schemes can hardly be managed efficiently without suitable software support. Health insurance companies in particular will inevitably have to further digitalize their administration if they want to meet the challenges described. Adesso has a comprehensive standard software for the administration of company pension schemes in its portfolio. This can be used to administer all implementation channels and commitment types, in particular modern securities-linked pension commitments. Common business transactions can be processed automatically and various valuation methods can be mapped.
Would you like to learn more about this topic? Our expert Jens Gustenhoven, Senior Business Developer, will be happy to advise you.
Do you have any questions or comments? Then please leave us a comment.