ATP’s investment return has more than made up for the losses in the first quarter
The investment portfolio has recovered from the losses that occurred during the first part of the corona crisis due to the drastic declines in the financial markets. The members’ pension guarantees are still intact and ATP’s goal of providing basic financial security has again proven its robustness.
Losses in the investment portfolio during the first quarter have been more than recovered
The investment portfolio generated returns of DKK 5.2bn, amounting before tax to 3.6 per cent of the average bonus potential for the period. In particular, investments in government and mortgage bonds and in listed Danish equities made positive contributions to the returns, while listed international equities had the highest negative returns. Losses due to the drastic declines on the financial markets during the first part of the corona crisis have thus been fully recovered from. Since 2010, ATP has generated a return of DKK 169.4bn in the investment portfolio, amounting to an average annual return of 16.7 per cent.
“For many years, we have worked with processes and risk management in a targeted manner. This has been a strong contributing factor in allowing us to navigate through the worst crisis on the financial markets in modern times. Even if one should be careful about looking at individual quarters when you are a long-term investor such as ATP, I am satisfied with how we, despite the drastic declines on the financial markets in the beginning of the year, have managed to create positive returns for 2020 so far,” says Bo Foged, CEO of ATP.
Hedging protects pension guarantees
ATP’s pension product is a guaranteed product that ensures its members a basic financial security. The hedging of the guarantees for the period has ensured that ATP can keep its promises to its members. ATP is paid out as a life-long benefit and thus supplements the state pension for the whole pension period. This is especially beneficial for those members for whom ATP Livslang Pension (Lifelong Pension) is the only private pension income apart from the state pension, which is the case for 40 per cent of all pension recipients in 2020.
“Together with the state pension, ATP is the foundation of basic financial security during retirement. Therefore, it is absolutely critical that the members can count on their lifelong pension, and that the guarantees are intact, even though the financial markets have been especially turbulent in 2020,” says Bo Foged, CEO of ATP.
The value of the guaranteed pensions rose by DKK 52.2bn during the first three quarters of the year, mainly due to falling interest rates. Compared to this, the hedging portfolio realised positive returns after tax of DKK 51.7bn. The value of the hedging portfolio therefore increased in step with the pension guarantees, and the hedging once more worked as intended, namely, as a protection for the guarantees. The hedging result before the yield curve break of DKK -0.5bn amounts to less than 0.1 per cent of the value of the guaranteed pensions, which at the end of September 2020 amounted to DKK 809.3bn. The total net result from hedging amounted to DKK -5.4bn, which is mainly due to the yield curve break when discounting the guaranteed pensions and this not does impact ATP’s total assets.
Result for the period and assets
The result for the first three quarters of the year amounted to DKK 0.9bn. ATP has set aside provisions of DKK 10.0bn to pay pension yield taxes for the period. The bonus potential (ATP’s reserves) at the end of the third quarter of 2020 amounted to DKK 126.9bn. Thus, ATP is still robustly capitalised with an excess cover of 15.7 per cent in relation to the guaranteed pensions of DKK 809.3bn. The assets of ATP members amounted to a total of DKK 936.1bn at the end of the third quarter 2020.
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