Allianz International Pensions

What’s happening in… September 2014

Japan is the oldest country in the world, leading all conventional measures of population aging. Whereas many developed economies will join Japan in the ranks of “super-aged” societies, most developing Asian countries are also about to follow Japans aging trajectory. Japan’s deteriorating demographics will impact on its pension system’s long-term adequacy. According to the latest actuarial assessment of the public pension system, future Japanese retirees will have to cope with a considerable lower retirement provision from public sources. Besides changing the investment strategy of Japan’s Government Pension Investment Fund, the recent reforms will potentially have an impact on the country’s retirement system by introducing an advantageous new tax savings vehicle and measures to raise fertility rates.

… Japan? Japan’s ageing society Japan is the oldest country in the world, leading all conventional indicators of population aging.1 According to the UN Population Division, its old-age dependency ratio (Share of people aged 65+ vs. people in the age groups 15-64) of 43.6% is the highest in the world. It also has the highest median age – 46.5 years – and the largest share of elderly inhabitants (65+) – 25.8%.

As well as the magnitude of population aging in Japan, the speed at which it occurred is remarkable. In the 1960s, Japan had the youngest population among today’s group of G7 countries, with the percentage of people aged 65+ at 6%. According to the UN’s definitions of the stages of population aging, Japan was a “young” country at that time. As a rule, once 7% of a country’s ▶

Figure 1: Speed of aging 1850

1900

1950

1850

1900

1950

2000

2050

Superaged

Aged

Ageing

1 The UN Population Division only monitors territories with more than 50,000 inhabitants. Therefore, other potential candidates for the title “oldest country in the world” are not considered (eg Monaco, Vatican City State).

2000 Germany

France

UK

2050 Japan

Malaysia

Hong Kong

Singapore

Sources: United Nations Population Division, US Census Bureau, Statistisches Reichsamt, Kisella and Gist, Mirkin and Weinberger, Allianz, Allianz International Pensions

Pension & Retirement Update

Allianz What’s happening in Japan? | September 2014

population is 65 years or older, the country is seen to be “aging”. When it exceeds 14%, the country is considered “aged” and by passing the next 7% threshold, or 21%, the country becomes “super-aged”. Between 1970 and 1995 – only 25 years – Japan transformed from an aging into an aged country (see Figure 1). This represents a doubling of the number of elderly people during a relatively short time span. In comparison, it took France, at the other end of the spectrum, 115 years (1865-1980) for the same transition. But other, more rapidly aging European countries such as the UK still took a considerably longer period of time (40 years) for their populations to age. In fact, just 11 years after reaching the aged stage, Japan became the first super-aged society in 2006. In contrast, it took Germany and Italy, the only other super-aged countries to date, 40 and 25 years respectively to rise to that level. Therefore, most other developed countries have had a longer time period to adapt to this new socio-economic environment. Japan has to cope with the consequence of a rapidly aging society at a time of persistent low economic growth and high sovereign debt levels. This leaves little room for a potential subsidization of the pension system, which already consumes more than 10% of GDP.2

‘Japanification’ of the pension landscape Japan’s “lost decades” after the burst of the asset price bubble in the early 1990s still lack a coherent explanation and have left many economists baffled. In terms of economics, Japan was long seen as an outlier to global historical experience. In times of ballooning fiscal deficits, all-time low interest rates, sluggish economic growth and private-sector deleveraging, the verdict is still out as to whether other countries – particularly those in the Euro Area might follow Japan’s (non-)growth path.3

2 Japan Ministry of Health, Labour and Welfare 3 Scott A. Mather, Dirk A. Jeschke; PIMCO Viewpoints; „Japanification“; August 2012 4 Paul Krugman; “Japan, Reconsidered”; The New York Times 01/02/2012 5 Employee Pension Insurance and Mutual Aid Pension are set to become a uniformed pension starting 2015.

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The implications of demographics on economic growth as an explanation for Japan’s long stagnation have recently received considerable attention.4 In demographic terms, the “Japanification” of most developed countries, as well as much of Asia, is inevitable. Alongside Germany and Italy, most western European countries – such as Spain, Sweden, France, Belgium, the Netherlands and Austria – will see their percentage

of people aged 65 and over rise above 21% in the next 10 years. But emerging nations in Asia – from Turkey to Malaysia – that still have relatively young populations will follow the Japanese aging trajectory and basically leapfrog from having young to super-aged societies within a time span of less than 40 years.

Japan’s pension system Japan’s policy initiatives designed to grapple with the fiscal and economic impact of a graying society therefore represent a preview of the steps many countries must take in the near future. Japan’s public pension system is currently multi-tiered and, in contrast with most western PAYG systems, partly pre-funded. Self-employed individuals and their dependents are covered by the National Pension (NP), which provides a basic pension. Private-sector employees are covered by Japan’s Employees’ Pension Insurance (EPI). There are also several Mutual Aid Associations (MAA) that cover government workers and special occupational groups. EPI and MAAs pay out the same benefits as the National Pension but also include an earnings-linked component.5 Dependents of EPI/MAA participants additionally receive a non-contributory pension that is on par with the basic pension. The statutory retirement age of the national and the earnings-linked pension is 65 years for both men and women. Early retirement options are being gradually phased out. Currently, the public pension system’s revenue sources are fixed. As a result of public debate about intergenerational justice, contribution rates for employees are to be capped at 18.3% from 2017. Furthermore, state subsidies for the basic pension were permanently fixed at 50% of total expenditure. This is ensured by the “macroeconomic slide formula”: a balancing mechanism that adjusts pension payments to demographic and economic developments. It was already established in the 2004 pension reform but, due to Japan’s exceptional pension levels, its implementation was postponed until 2015. Japan’s exceptional pension levels emerged in the 2000s, when pension indexation – which would have occasioned nominal entitlement cuts – was scrapped in the deflationary environment. Therefore, the pension benefit level was artificially bloated by 2.5%. These exaggerated pension benefits will gradually be cut by prime minister Abe’s government until April 2015. ▶

Allianz What’s happening in Japan? | September 2014

Figure 2: Japan’s public pension system Earnings-linked pension

Basic pension = ¥ 65,541/mo

Paid by contributions from NP

Paid by contributions from EPI and MAA

Paid by national government subsidy (50% of basic pension outlay, 2% of GDP) Covered pension category

Category 1: Self-employed and dependents

Category 2: Employees

Category 3: Dependents of Category 2

Program name

NP

EPI (private sector), MAA (government, etc)

EPI / MAA

# covered (before retirement)

19.04 million

EPI: 34.51 million, MAA: 4.41 million

9.78 million

Note: NP = National Pension, EPI = Employees’ Pension Insurance, and MAA = Mutual Aid Associations

Source: Japanese Government

Japan’s public reserve funds hold a total of about ¥176 trillion (€1.27 trillion) in assets, most of which (¥126.5 trillion (€912 billion) as of March 2014) are managed by the Government Pension Investment Fund (GPIF).6 Total reserve fund assets amount to about 3.8 times the current total annual pension expenditure.7 The GPIF’s mandate as a relatively independent organi­ zation governed by the Ministry of Health, Labour and Welfare (MoHLW) is to “contribute to the stability of the EPI and the NP scheme”. The funds will be used to finance deficits developing out of situations such as adverse economic or demographic conditions. (See “Implications of aging” below) 6 Nomura Research Institute, Japan’s Asset Management Industry, 2013/14

Japan’s public pension system aims to provide income replacement for employed households upon retirement. For the average salaried household, the current replacement rate stands at 62.7% of the last drawn salary.8 Therefore, the current retirement income provided by public sources lies in the range of OECD’s estimate for an adequate retirement income (60% to 70%).

7 Ministry of Health, Labour and Welfare, 2014 8 Ministry of Health, Labour and Welfare, 2014

In terms of old age provision, Japan’s occupational pensions only play a supplementary role. The second pillar saw a major reform during the 2000s with the introduction of corporate defined-benefit (DB) and defined-contribution (DC) plans. Additionally, there are Employee Provident Funds (EPF), which are a special DB

9 Nomura Research Institute, Japan’s Asset Management Industry, 2013/14 10 As of 2010. Source: Ministry of Health, Labour and Welfare.

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vehicle that allows employers to contract out of parts of the EPI. Nevertheless, as a considerable share of EPFs fall short of the funds required for public pension benefits, which were contracted out, legislation was passed to dissolve the majority of the EPFs. Their assets will either be absorbed by the GPIF or transferred to new or existing company DB or DC schemes. As of 2012, occupational pension assets in these pension vehicles totaled ¥86 trillion (€620 billion), which represents about 18% of GDP.9 Given the maturity of the Japanese market, second-pillar pensions are not likely to cover any potential future cuts of public pensions. Moreover, because company pension schemes in Japan evolved from severance payment agreements, even DB schemes rarely pay out a lifelong income but rather a lump sum or fixedterm annuity. In fact, old-age income from occupational and personal pensions only amounts to slightly more than 5% of total retirement income in Japan.10

Implications of aging on the sustainability and adequacy of the Japanese pension system Therefore, public pension provision – as in most devel­ oped countries – still represents the major source of revenue in old age. Ensuring the fiscal sustainability of an elaborate social security system without compromising ▶

Allianz What’s happening in Japan? | September 2014

Figure 3: Selected scenarios for Japan’s pension system Optimistic

Fertility: low Economy: optimistic 50% (FY2042 onwards) {47.3% (FY2047 onwards)}

Fertility: intermediate Economy: optimistic 51% (FY2043 onwards)

Fertility: high Economy: optimistic 54.4% (FY2038 onwards)

Intermediate Economic assumption

Fertility: low Economy: intermediate 50% (FY2041 onwards) {46.8% (FY2047 onwards)}

Basic scenario Fertility: intermediate Economy: intermediate 50.6% (FY2043 onwards)

Fertility: high Economy: intermediate 54.2% (FY2038 onwards)

Pessimistic

Fertility: low Economy: pessimistic 50% (FY2035 onwards) {35.0% (FY2072 onwards)}

Fertility: intermediate Economy: pessimistic 50% (FY2038 onwards) {42.0% (FY2058 onwards)}

Fertility: high Economy: pessimistic 50% (FY2042 onwards) {47.4% (FY2049 onwards)}

Low

Intermediate Fertility assumption

As pension levels below 50% would trigger reforms, numbers in curly brackets represents the replacement rate if balancing mechanism is further applied.

the adequacy of retirement income will present a major challenge to social policy in Japan in the coming decades. Japan’s urgent need to reform its system is evidenced by its low score on the Allianz Pension Sustainability Index (PSI), where it ranks third to last in a sample of 50 countries, ahead of only Brazil and Thailand.11 The urgency to act is sharpened due to Japan’s eagerness to continue with its strong public-pillar strategy in future. This contrasts with other western countries that are trying to cope with the effects of demographic change by introducing nonparametric reforms, emphasizing the need for individuals to provide for themselves with private funds. The actuarial assessment of the pension system, carried out by the MoHLW and presented in July 2014, illustrates the levels of future retirement income from the public pension system that can be expected in Japan’s aging society.

11 Allianz International Pension Papers, 01/2014 12 Allianz International Pension Papers, 02/2014

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In a future scenario characterized by intermediate growth and intermediate fertility (cf box parameters of the scenario analysis), income replacement for a two-person household would shrink considerably by 12.1 percentage points to about 50.6%. This reduction is directly related to the worsening demographic situation and the system’s current setup. Given that the income side of the system is rigid, a worsening support ratio – the relationship between beneficiaries and contributors – will ultimately lead to lower benefits. (See paragraph “Japan’s pension system”)

High

Source: Ministry of Health, Labour and Welfare

The outlook is especially bleak if fertility rates continue to decrease from their already low levels of 1.39 children per woman. In this case, regardless of any further development of the Japanese economy, replacement rates could fall below 50% – a level explicitly guaranteed by the government – which would trigger new pension reforms. In the intermediate economic scenario, this would happen in the fiscal year 2041. If the balancing mechanism is further applied (irrespective of the 50% threshold), the replacement rate would level off at 46.8% from 2047 onwards. Otherwise, public reserve funds could be used to artificially sustain a 50% pension level. In this case, public pension reserve assets (estimated to have reached a level of ¥230.5 trillion (€1.66 trilion) in 2014 terms) would last an additional 39 years until they are fully depleted. Regardless of economic and demographic trends, future Japanese retirees will have to adapt to a considerably less generous public pension system. Insecurity about the future of the pension system is manifested in public opinion and its perception of retirement. According to an Allianz survey of two age groups (30 to 45 years and 60 to 75 years) undertaken in seven countries (Germany, France, Italy, UK, Japan, Turkey and Malaysia), the Japanese experience the greatest uncertainty about their future. Just 16% of the elderly and 4% of the younger people questioned expressed confidence or strong confidence in the future.12 The younger age ▶

Allianz What’s happening in Japan? | September 2014

B r e a ko u t b ox : Para m e t e rs o f t h e sc e n ari o a n a lysis

The actuarial assessment of Japan’s pension system is based on several assumptions regarding fertility, mortality, economic conditions (GDP growth, inflation, wage growth, development of labor market) and the investment yields of public pension assets. The intermediate fertility scenario assumes the current level of births will prevail until 2060. In this case the total fertility rate will roughly stay the same at 1.35 (2010: 1.39). In the low birth scenario, fertility will fall to 1.12 children per woman by 2060. Even in the high fertility scenario – 1.6 children per woman – the Ministry of Health, Labour and Welfare does not expect Japan to reach a replacement fertility rate.

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The long-term economic scenarios correspond to variations of Japan’s Cabinet Office’s economic estimates. Apart from assumptions regarding total factor productivity (TFP), wage and price inflation, economic growth rate and the imputed investment yields, the scenarios also present estimates regarding the develop­ ment of the labor force participation rate (LFPR). The scenarios apply to the following long-term growth paths (starting 2024):

Scenario

LFPR

TFP

Price inflation

Wage inflation

GDP growth (real)

Investment yield

Optimistic

increases

1.4%

1.6%

1.8%

0.9%

3.2%

Intermediate

increases

1.0%

1.2%

1.3%

0.4%

3.0%

Pessimistic

constant

0.7%

0.9%

1.0%

0.2%

2.2%

group in particular voiced major concerns about their old age provision. Sixty per cent of the Japanese people surveyed in the 30-45 age group said they were worried about their financial situation when they retire.

13 Admittedly, due to the deflationary market environment in Japan during the 2000s, real investment return (after wage increases) has been higher than the assumed real investment return in the exercise of the MoHLW.

The underlying assumptions for life expectancy for the scenarios depicted in Figure 3 correspond to the intermediate mortality scenario of the MoHLW, which postulates an increase in longevity from 79.55 to 84.19 years in the time period 2010 to 2060 for men and from 86.3 to 90.93 years for women.

Given the reductions in their relative pension level (between 13 and eight percentage points), Japanese employees must either save more or work longer in ­ order to maintain current replacement rates. An averageincome household aspiring to the same retirement income at age 65 in the 2040s as a retiree receives today would need an additional 1.5 to 2.5 times their annual income (at today’s value) in savings to make up the dif­ ference. Assuming a real investment return of 2%, this translates into additional savings rate of about 2.5% to 4% of salary for a 40-year career. Alongside adequacy, sustainability will remain an on­going issue in the context of the Japanese pension system. If government coffers are indeed to be deep enough to finance a potential shortfall below 50% for a sustained time period, they will be heavily dependent

on the investment returns of the GPIF and other reserve funds. In case of the GPIF, annualized 12-year nominal returns amounted to 1.54% (according to the annual report for fiscal year 2012), which is considerably lower than the aspired investment yield in the actuarial valuation ranging from 2.2 to 3.2%.13 The investment strategy of the GPIF and its use of public funds have been controversially debated in the course of Japan’s recent reform programs often termed “Abenomics”.

Pension “Abenomics” – the GPIF’s new investment strategy In an effort to revive the economy, Japan’s prime minister Shinzo Abe launched a comprehensive reform program based on “three arrows”: fiscal stimulus, an expansive monetary policy and profound structural reforms. Nevertheless, as the exercise of the MoHLW shows, the main drivers of future pension sustainability and adequacy are Japan’s path for further growth, its demographic development and the ability of the Japanese people either to save more or work longer. ▶

Allianz What’s happening in Japan? | September 2014

Table 1: Results of the Advisory Panel on Public Funds (November 2013) Key Recommendations Immediate action points

Short-term action points

Long-term action points

• Review of investment allocation within the current base portfolio guidelines, increasing allocations to active funds

• Revision of base portfolio allocation

• Introduction of new asset classes (with lower liquidity and lower NAV transparency)

• Review of risk/return target • Review of benchmarks for passive investments • Application of forward-looking risk management, inflation-risk hedging

• Introduction of new asset classes (mainly those with liquidity and NAV transparency) • Establishment of a baby fund

• establishment of fully-empowered board

• Employment of full-time committee members and investment professionals with significant expertise Brightrust PE Japan

The structural reforms announced in June 2014, known as the “Revitalization Strategy for Japan”, will also affect future pension sustainability and potentially adequacy.

14 Nomura Research Institute, ‘How will expert panel’s recommendations change public pension fund management?’, 01/2014. 15 Reuters, ‘Japan PM pushes GPIF to buy more stocks, amid talk it already is’, 6 June 2014 16 National Institute of Population and Social Security Research, 2012 17 Frankfurter Allgemeine Zeitung, „Japan arbeitet an der drei Kinder Familie“, 6 February 2014 18 Prime Minister of Japan and His Cabinet, Revision of Japan Revitalization Strategy – 10 key reforms, June 2014 19 Bank of Japan, Flow of Funds

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One of the goals of Japan’s Revitalization Strategy is to improve the long-term performance of publicly owned assets. In order to evaluate the strategies to enhance the ­result of the investment of the appro­ ximately ¥200 tril­lion (€1.44 trillion) assets held by the GPIF, MAAs and other quasi-public funds (such as university endowments), the government set up an advisory panel, the key recommendations of which ­ were presented in November 2013.14 (See Table 1) Market participants assume that the overhauled invest­ ment strategy for the GPIF in its role as the country’s most important reserve fund will contain a considerably higher exposure to risk-bearing investments, especially equities.15 Apart from increasing the fund’s potential long-term returns, the strategy will also allow it to free up capital for firms to invest – a by-product in alignment with general government objectives.

government to keep the Japanese population above 100 million for the next 50 years.17 In a joint effort to increase women’s participation in the labor force, Japan’s Revitalization Strategy foresees several measures to make the workplace more familyfriendly and attract more immigrants.18 In fact, given the heavy dependence of a pay-as-you-go system on the demographic situation, increasing the fertility rate would have a major impact on the adequacy and sustainability of future pension income. Nevertheless, as evidence from other countries shows, finding the right policy to incentivize people to have more children is a difficult task.

Introduction of individual savings accounts (ISAs)

Measures to hold Japanese population constant

Japan’s 2013 tax reform created a new savings facility for its population. As of January 2014, Japanese people are allowed to invest up to ¥1 million per year (€7,200) in non-taxable individual saving accounts (ISAs). Earnings or gains from listed stock will not be taxed for five years. ISAs will operate from 2014 to the end of 2023, with every resident allowed to open up to five accounts.

The Japanese population peaked in 2008 with a total of 128.084 million inhabitants. Since then, Japan’s population has been gradually shrinking. According to National Institute of Population Research estimates, Japan’s population will decrease by about one third by 2060.16 It is the declared objective of the Abe

ISAs are an attempt to channel parts of the vast savings held by Japanese households into risk-bearing capital. As of December 2013, the total financial assets con­tained in Japanese households amounted to ¥1,696 trillion (€10.4 trillion), of which about 53% are held in cash – despite record low interest rates.19 The Japanese government ▶

Allianz What’s happening in Japan? | September 2014

aims to entice households into investing ¥25 trillion (€180 billion) of these savings into ISAs by 2019. Seen from an Abenomics perspective, the introduction of ISAs is another program to shore up capital in order to enhance recovery of the Japanese economy. Additionally, tax-advantaged individual saving accounts could represent an important tool for the formation of long-term assets that can earn a risk premium and be used for additional retirement savings in times of declining public pension benefits.

Outlook The Japanese population must adapt to shrinking public pension income in the future. Even if Abe government reforms gain traction and Japan experiences higher eco­ nomic growth in the future, together with an improving demographic situation due to a successful increase in fertility rates and an increase in immigration, pension benefits will most likely be lower than they are today. Japan is carefully considering its reforms of how their public pension assets are invested. Given the possibility that the pension system may experience a funding deficit below the 50% income replacement limit for the referenced households, the size of the pension reserve may be a crucial factor in sustaining public pensions as a major source of old-age income. The introduction of ISAs as a tax-advantageous savings vehicle may be a first step in ensuring that future gene­ rations are able to access adequate retirement income. Ultimately, the current prospects of the Japanese pension system indicate that Japan’s labor force will either have to save more or work longer in future.

Bibliography Allianz 2014, International Pension Paper 1/2014: ‘Pension Sustainability Index 2014’ Allianz 2014, International Pension Paper 2/2014: ‘Security – Trust – Solidarity’ Jeschke, Dirk A.; Mather, Scott A.; ‘PIMCO: Viewpoints: “Japanification”’, August 2012 Krugman, Paul; ‘Japan, Reconsidered’; New York Times, 9 January 2012 National Institute of Population and Social Security Research, ‘Population Projections for Japan’, 2012 Nomura Research Institute, ‘Japan’s Asset Management Business 2013/2014’, December 2013 Nomura Research Institute, ‘How will expert panel’s recommendations change public pension fund management?’, January 2014 Ministry of Health, Labour and Welfare 2014, Actuarial Assessment of the Pension System Prime Minister of Japan and His Cabinet, ‘Revision of Japan Revitalization Strategy – 10 key reforms’, June 2014

Exchange rate used: EUR-JPY – 138.70

Richard Wolf Economist International Pensions # +49 (0) 89 1220 7473 0 [email protected] & www.projectm-online.com/research

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Allianz What’s happening in Japan? | September 2014

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Allianz SE Koeniginstrasse 28 80802 Munich, Germany Phone: +49 89 3800-0 Fax: +49 89 3800-3425 www.allianz.com Editors Dr. Renate Finke, Senior Economist [email protected] Michela Coppola, Senior Economist [email protected]

Recent Publications Security – Trust – Solidarity Perception of retirement: a cross-country comparison. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 2014 Pension Sustainability Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014

Richard Wolf, Economist

Demographics in focus III: “60 is the new 50”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014

[email protected]

Demographics in focus II-update: Aging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014

International Pensions

Demographics in Focus I-update: Population growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014

[email protected]

Preparing for Retirement – Financial Strategies of the Affluent 50+ Generation in European Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013

Closing Date

Impact of the Euro Debt Crisis on the Investment Behavior of 50+ European Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013

September 04th, 2014

What’s happening in India? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 What’s happening in Malaysia?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013

Cautionary Note Regarding Forward-Looking Statements The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may”, “will”, “should”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group’s core business and core markets, (ii) performance of financial markets, including emerging markets, and including market volatility, liquidity and credit events (iii) the frequency and severity of insured loss events, including from natural catastrophes and including the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and / or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures, and (xiv) general competitive factors, in each case on a local, regional, national and / or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forward-looking statement. No duty to update The company assumes no obligation to update any information contained herein.

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