PENSION FUNDS AND INSURERS' EARNINGS ARE COLLAPSING

With more than US$13T bonds with negative yield and NIRP, major pension funds and insurers' earnings are collapsing. This is because these entities often rely on fixed income investment rather than trading, but with bond yields and interest rates in negative territory, many have to push their investment into riskier assets.

Here are some examples of pension funds which have performed badly:

1) Japanese Government pension fund squanders US$130B in stock losses in the past year. And this is how badly it looks in a chart (Source Zerohedge)

2) CALPERS which is one of the larges state pension funds announced earnings of 0.61% over a 12 month period vs the 7.5% target (Source: www.ocregister.com)

3) Central  States Pension is in a deep mess and have enough funds to last just another 10 years (Source: www.ft.com). What happens to those who are now contributing? Will they ever be paid in the future when they retire?

The money printing with negative interest rates and quantity easing is causing huge gaps in funding and will certainly reel its ugly head in the near future.

Then we have the US Social Security and Medicare, both of which have liabilities to the tune of US$43T. Don't talk about the US$66T in Total Debt, including US$19T in Government Debt The last time I checked, US GDP is only US$18.5T.

How did the insurers perform? Here are some of results for the month ending June, 2016 to ponder upon.

1) Metlife Revenue fell 6.0% y-o-y. Profit fell 48.0% y-o-y

2) Allianz Revenue fell 2.5% y-o-y. Net Profit fell 46.0% y-o-y

3) Prudential Revenue fell 42.6% y-o-y. Net Profit fell 34.5% y-o-y

4) Zurich Revenue grew 17.0% y-o-y. Net Profit fell 12.0% y--o-y

5) Tokio Marine Revenue fell 8.7% y-o-y. Net profit Fell 15.5% y-o-y

Some like Aetna, AIG and Manulife did report better Q2 2016 results vs a year ago, but the likes of Metlife, Prudential and Allianz are a sight to be concerned because these are big players in the insurance market.

It comes at no surprise therefore that insurers are raising premium charges to offset the loss in Revenue and Net Profit.

Increasingly, insurers who have relied on fixed income assets have to partake in risky investment to address the shortfall in Revenue and Net Profit. But asset bubbles will burst and when that happens it will be 2008 all over again.