BULGARIA

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PIC DOVERIE
Role of Institutional Investors in Advocating
Better Corporate Governance Practices
First South East Europe Corporate Governance
Roundtable 20-21 September 2001, Bucharest,
Romania
S. Toshev, Ph. D. Pension Insurance Company
Doverie
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Bulgarian Pension Insurance System
State Social Security pay-as-you-go
principle First Pillar
1994
Supplementary Voluntary Pension
Insurance individual accounts private
management Third Pillar
2000
Supplementary Mandatory Pension
Insurance individual accounts private
management Third Pillar
now
Three-pillar pension system
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Pension Reform in Central and Eastern Europe
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Market Potential
Voluntary Pension Funds 5 000 000Every person
over 18 years General Pension Funds 1 400
000Every working person born after 31.12.1959 is
subject to assurance Professional Pension Funds
140 000People working under the conditions
of I and II category of labor
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Expected Increase of the Assets in the Funds for
SMPI
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Foreign Investors in the Pension Sector
More than 75 of the capital of the pension
assurance companies held by foreign investors

• TBIH
• Allianz
• ING Group
• Newton Group
• Munich Re
• LukOil

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Investment Regulations

• The pension insurance company may not invest more
  than 5 percent of the assets of the pension fund
  in securities issued by one company (10 percent
  with the permission of the State Insurance
  Supervision Agency)
• The pension fund may not acquire more than 10
  percent of the shares of one issuer or acquire
  interests through which to appoint directly or
  indirectly more than half of the members of the
  managing body, or in any other way to exercise
  decisive influence on decision-making related to
  the activity of the issuer

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Importance of Corporate Governance

• The role of good corporate governance practices
  for the success of pension reforms in South East
  Europe cannot be overestimated.

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Means and Ways by Which Pension Funds May Promote
Improved Corporate Governance

• Pension funds should invest preferably in
  companies that follow high corporate governance
  standards
• Most of the companies traded on Bulgarian Stock
  Exchange have already some corporate governance
  track record
• Unfortunately, due to trends of concentration of
  ownership in the companies during the
  post-privatization period, in most cases problems
  do exist, especially with respect to dilution of
  minority stakes.

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Means and Ways by Which Pension Funds May Promote
Improved Corporate Governance

• Active participation in shareholders meetings of
  the companies in which investments have already
  been made
• Efforts to make GM effective instrument of
  governance
• Voting rights are assets of the pension fund. The
  management company has discretionary authority to
  manage fund assets. By voting in shareholders
  meetings in an informed and responsible manner on
  issues of corporate governance the pension
  insurance company discharges its fiduciary duties
  with respect to the pension fund
• Pension funds should not be passive shareholders.

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Means and Ways by Which Pension Funds May Promote
Improved Corporate Governance

• Cooperation with policy makers and regulators in
  preparation of necessary amendments to the
  existing law which promote better corporate
  governance practices.
• Cooperation with other representatives of the
  private sector in preparation of voluntary
  standards in the area of corporate governance.