LONDON, May 6 /PRNewswire/ --     Allianz Global Investors AG (AllianzGI) one of the world's
largest asset management companies, launches, as part of its cooperation with
the Organisation for Economic Cooperation and Development (OECD) a new study
that addresses the impact of risk-based funding requirements on defined
benefit (DB) pension schemes. The research explains why Solvency II, if
applied in its current guise to DB schemes, could force sponsors to increase
funding, change asset allocations and move to a risk-sharing structure.

Highlights of the study include:

- There is ongoing discussion in Europe over the application
of Solvency II style rules for pension schemes. The AllianzGI report aims to
illustrate how and why DB schemes require a different approach from that
applied to insurance companies. Without major amendments, the current
Solvency II rules as drafted for insurance companies, if applied to pension
funds, could force sponsors to reconsider their commitment to DB schemes.

- DB pension scheme liabilities appear much larger under
Solvency II than under the current IAS 19 regulations, the international
pensions accounting standard. For a traditional final salary DB scheme, a
scheme that is deemed to be fully funded (100%) under IAS 19 would only be
64% funded under Solvency II.

- Measures that could reduce the resulting underfunding gap
under Solvency II for traditional schemes include a change in asset
allocation to reduce equities and create a closer match between assets and
liabilities.

- An effective measure to counter the impact of Solvency II is
a risk-sharing agreement between the sponsor and members. However, some DB
schemes with a risk-sharing structure may find only little change in their
solvency position, as compared with IAS 19.

- The type of risk-sharing agreement used is very important.
While conditional indexation and increased member contributions can help to
bridge the gap between the two solvency measures, the most effective
risk-sharing mechanism under Solvency II is benefit cuts.

The cost of funding DB schemes is directly linked to the
solvency regime, which establishes the level of funding deemed necessary to
meet current and projected future liabilities. Any tightening in the solvency
rules will have a significant and potentially negative impact on the
sponsor's costs and risks.

A new solvency regime for insurance companies in the EU, known
as Solvency II, is being drafted and is expected to come into force at the
end of 2009. DB funds currently are excluded from the scope of Solvency II
but this year regulators are considering separate rules for pension schemes.
If the rules, as currently drafted for insurance companies, are extended to
DB funds they could increase sponsor costs significantly. Pension schemes
that have a risk-sharing agreement between the sponsor and members are less
vulnerable to the risk of underfunding under Solvency II.

Brigitte Miksa, Head of Pensions International, AllianzGI,
says, "Solvency II aims to ensure adequate policyholder protection in all EU
member states through the requirement for a level of funding that more
closely matches the true risks of insurance undertakings. However, DB schemes
are quite different from insurance companies and regulators need to reflect
these differences in the new rules being drafted this year. Our research
shows that to apply Solvency II in its current form could be the final nail
in the coffin for DB schemes."

Evaluating the Impact of Risk Based Funding Requirements on
Pension Funds, evaluates the quantitative funding requirements that would be
applied to DB schemes if Solvency II is adopted in its current form. The
research was carried out by AllianzGI and risklab germany GmbH, a subsidiary
of AllianzGI, together with the Institute of Finance and Actuarial Sciences
and is part of a joint research project with the OECD on risk-based
regulations. The results of the study are reflected in an OECD policy report
on Funding Regulations and Risk Sharing which is also being released today.

If Solvency II is implemented in its present form the biggest
impact will be on traditional DB schemes with no risk-sharing features. A
scheme that is 100% funded under the accounting rule IAS 19 could be only 64%
funded under the new regime. (NB. This would require sponsors to increase
funding levels to the equivalent of 169% of IAS 19. This is greater than the
156% that intuitively one would expect to be required on a simple
mathematical basis. This is because the Solvency II model's solvency
requirements increase with rising asset funding, as the excess funding risk
capital has to be provided.)

The analysis was based on the current status of the rules
drafted for insurance companies and applied to a range of generic or model
pension schemes that are 100% funded under IAS 19. The models reflect the
characteristics of typical EU schemes in terms of asset allocations and
different membership profiles (the proportion of active, deferred and
pensioner members, among other categories).

The generic models also reflect different scheme designs,
ranging from schemes where 100% of the investment and longevity risk is borne
by the sponsor to those where risk-sharing agreements share part of these
risks with members. Examples of risk-sharing arrangements include the
conditional indexation of benefits, the requirement for increased member
contributions, and the scheme's ability to cut benefits. Such features may be
triggered automatically for example when funding levels drop to a specific
level.

The study shows how schemes could reduce the underfunding that
might arise under Solvency II. Gerhard Scheuenstuhl, Managing Director of
risklab germany GmbH, explains, "The main drivers of the Solvency Capital
Requirement for a typical pension portfolio are interest, equity and
longevity risk. To reduce the potential underfunding, schemes would need to
make significant changes in asset allocation to reduce their equity and
alternatives exposures and also to create a better match between assets and
liabilities."

The study found that risk-sharing structures can provide an
effective way to reduce solvency capital requirements Mr. Scheuenstuhl says,
"A move from unconditional to conditional indexation results in a lower
funding requirement due to lower technical provisions and Solvency Capital
Requirements but this step would not completely eliminate the underfunding
gap. Further work needs to be done on risk sharing as a flexible instrument
to mitigate risk. As an extreme version, the employees' agreement to benefit
cuts is the most effective arrangement in terms of Solvency II as it
currently stands but most likely it is not the one favoured by employees and
pensioners."

About Allianz Global Investors

Allianz Global Investors AG (AllianzGI), a subsidiary of
Allianz SE, is a management holding company for a network of investment
specialists in the most important institutional and retail markets around the
world. Through PIMCO, RCM, Oppenheimer Capital, NFJ, Nicholas-Applegate and
several other specialist firms AllianzGI offers its clients a broad variety
of investment competencies, covering all equity and fixed income investment
styles as well as balanced products and alternative investments. With 970
billion Euro Assets under Management (2007), AllianzGI ranks amongst the top
investment management companies worldwide. Through its network of more than
4500 employees around the globe, including more than 900 investment
professionals, AllianzGI is able to leverage local expertise and market
knowledge to its clients all over the world.

For further information please contact:
    
    Nigel Webb,
    Phone +49-89-1220-7222,
    Email: Nigel.webb@allianzgi.com;
    
    Claudia Mohr-Calliet,
    Phone +49-89-1220-7435,
    Email: Claudia.mohr-calliet@allianzgi.com.