March 30, 2011
Information on the Letter of Intent about the strategic cooperation between the CIG Pannonia Life Insurance Plc. and the Pension Fund of Electricity Companies
CIG Pannonia Life Insurance Plc. (registered seat: H-1033 Budapest, Flórián tér 1.; company registration number: Cg. 01-10-045857; hereinafter the “Company”) and the Pension Fund of Electricity Companies (registered seat: H- 1072 Budapest, Nyár u. 12., registration number: 11.Pk.61544/1994; hereinafter the „Fund”) hereby inform the shareholders, the members of the pension fund and the capital market participants on the signing of the Letter of Intent about a long term strategic cooperation.
The transformation of the private mandatory and voluntary pension fund market in 2010 fundamentally changes the way society views the role of remaining forms of self-provision, beside social care based on state dominance in Hungary. The Company and the Fund expect an increasing social demand for long-term savings after the role of the private pension fund system declined, and emerging financing challenges of the state pension care system.
In the light of its achievements on the national insurance market and after becoming present in the countries of the region, the Company intends to gain significant role in the field of the Hungarian pension funds, health plans, and self-help fund market with the strategic cooperation with the Fund.
Beside their insurance and pension fund activities, the mutual goal of the Company and the Fund is to broaden the portfolio of the products and services, which they can offer to their clients. On the mid-term they intend to become the leading financial services group in Hungary through the launch of a range new retail financial services. With this cooperation the Fund aims to ensure that its clients receive services of continuously improving quality and efficiency on the long-term. Preserving and securing the interest of fund members is an important aspect of this cooperation.
For the purposes of the cooperation the Company brings its stable shareholder and management background,, national life and non-life insurance operation, life insurance operation in Slovakia and Romania. Thank to its public operation, the nationally and internationally increasingly known Company also brings transparency, far reaching distribution channels and a long-term commitment for the Hungarian insurance and pension fund market.
The Fund – as one of the most effective actors of the national pension funds – could add a valuable contribution to the success of the cooperation with its expertise, and with its over thirty thousand voluntary and mandatory pension fund members. Through its efficient administration and asset management functions, the conditions of the cooperation could be realized, and operational effectiveness could also increase already on the short-term.
According to the Letter of Intent the Company and the Fund plan to develop and sign the agreement which includes the details of their cooperation (hereinafter: “Agreement”) until April 30th 2011, primarily in order to achieve the following goals:
1. the Parties create a body which is responsible for the synchronization the two relevant areas of pension fund and insurance, for providing support and developing strategy. Meanwhile the Company and the Fund will remain legally independent;
2. in the interest of the effective joint handling of insurance technical reserves built during the insurance activity and pension fund reserves, the funds will be handed over to the Funds’ own Trust (portfolio management) firm. This firm will be founded by the Fund which will take over from its current wealth management activity. After the foundation the Company will get a 20 percent share in the Trust, while a further 70 percent of its ownership will be subject to a long-term call-option, depending on the indicators of wealth increase;
3. The Funds services and administrational activities currently provided within Funds’ scope of activities will be handed over to a newly founded firm. After the foundation of the service provider, the Company may get 10 percent ownership in the firm and further 39 percent its ownership will be subject to a long-term call-option depending on the indicators of headcount increase. Meanwhile, the Fund will keep 51 percent strategic majority ownership in the firm for the entire duration of the cooperation;
4. In order to exploit the potential synergies within the cooperation, the Parties will jointly develop the concept, the sales of voluntary pension fund products, the schedule of the introduction of products into the distribution channels and the possibility of the legitimate division of client bases. Meanwhile, they will review the long-term possibilities of merging activities which may otherwise duplicate during their operation, and the business potentials offered by health plan, health insurance and self-help-markets.
After the signing of the Letter of Intent, the exact legal framework of the strategic cooperation will be defined, for which the approval of the Assembly of the Fund is required, for it to step into force.
The Company and the Fund is open to the concept that later other actors from the markets of private and voluntary funds, health and self-help funds join the cooperation as well, primarily through integrating into its fund organization.