Financial Convergence Analysis: Implication for Insurance and Pension Markets

The proposed paper is one of a set of articles dedicated to the new phenomenon in the global and national financial markets – financial convergence – and is focused on theoretical issues. The hypothesis of the article is to argue whether the financial convergence determines the directions of financial market (namely, insurance and pension sectors) development. Adequately the goal of this paper is to analyze the existence of convergence processes in the insurance and pension markets. Methods of systematic and logical analysis are used. In the first part authors give brief history of the convergence phenomenon research. Then the paper analyses influence of financial convergence on insurance and pension markets, manifested in the following effects: mix of financial institutions functions; distribution channels advantages, increase of insurance and pension funds companies’ competitiveness; governance models convergence. The major results of the study are: demographic shifts in different developed and emerging markets countries caused the need to reform the social security systems and public pension schemes and refocus them to the market-based financial convergence model; pension funds, acting as institutional investors, are the leading players in the contemporary global financial market; competition at the financial market causes the expansion of a number of services offered by various organizations: banks, insurance companies, pension funds and so on, which offer a wide range of services not directly related to their core businesses; the mixing of financial institutions functions from the insurance, pension and banking sectors, increased competition for customers at the national and global financial market.


Introduction
The relevance of this article is caused by a growing signifi cance of insurance companies and pension funds in the developed countries and emerging markets economies in the process of financial convergence taking place in the in surance and pension markets. In this context it is necessary to point out a special role of these institutions themselves: (1) insurance companies provide protection of property casualty interests of legal and natural persons -enterprises, entrepreneurs and citizens, (2) pension schemes form an oldaged citizen's acceptable level of income provision.
In economics the term convergence is used and de fined in several approaches. The first debate discussed the institutional competition as traditional market product competition 2 . The financial system here is considered as a system of minimal complexity, where the structural rela tionship between the components does not play any role. It is supposed that competition and convergence will result the most efficient financial system: either market or bank oriented (Hansmann, Kraakman 2000).
In the 1980s the idea appeared that the bankbased financial systems are more prone to economic growth and hence will dominate in the world. In the late '90s, after a se ries of Robert Levin publications, the direction of the debate about the convergence of economies shifted towards the im pact of convergence on economic growth (Levine 1997). In the last decade, the vector of economic systems research (in the neoclassical "mainstream") has shifted back towards a marketoriented systems (Liberal economics: United States, Great Britain etc.) as the best source of economic growth (Hathaway 2000;Rajan, Zingales 2000).
Another direction of the convergence theory develop ment is connected with harmonization of capital markets regulation and supervision, as well as with mechanisms for coordination of the various states and regions of the world economy macroeconomic policies. In this sense the convergence is figured out as levels of economic and socio economic development of countries, regions, industries, individual companies, etc. Here the concept of convergence is most often used for spatial income inequality study (re gions, countries and so on), to answer the question whether different economies reach more even distribution of income via convergence. This direction is based on R. Solow neo classical growth model. The most wellknown is the concept of β (beta) -and σ (sigma) -convergence, proposed by R. Barro and H. SalaiMartin (1998). These concepts are based on a loglinear approximation of the Solow growth model with the Cobb -Douglas production function and give the new framework of the convergence theory as a method of industrial market organization study.
Applied research of the convergence phenomenon spread to the financial markets in connection with the integration process in the European region, and focused mainly on the financial integration analysis. The role and influence of the financial convergence on different segments of the financial market, as well as various aspects of financial integration were considered by many authors (Lane 2008;Ozcan et al. 2008;Adam et al. 2002;Baele et al. 2004). For example, L. Baele defines financial integration as a market for a specific financial instrument, when economic agents with similar characteristics are acting in the same admin istrative environment according to equal rules. Rosenov R. and Hristov K. (Hristov, Rozenov 2009) measured the evo lution of capital market integration in the European Union 2 Which in fact is close to Chicago School of Economics.
in accordance with financial indicators, based on prices (dif ference in asset prices in the various European markets) and news indicators (the influence of any information on the dynamics of asset prices).
Later convergence processes were reflected in the works of many researchers. Some academics have considered con vergence from the point of financial institutions overall changes. These studies implemented quantitative methods, focusing on the consequences of convergence, rather than on its causes (Murinde et al. 2004).
Di Giacinto and Esposito (2005), using data from 1995 to 2003 argued that there was convergence of financial development indicators in 13 European countries. Quah (1996) defined the category of stochastic convergence. Stochastic convergence hypothesis is satisfied if for two countries change in the level of per capita income is a sta tionary process with zero mean. Affinito and Farabullini (2006) determined whether the integration in the banking sector of the European Union exists. They applied the law of one price, according to which in the absence of trade bar riers and transportation costs the same good must have the same price in different countries. Sorensen and Guiterrez (2006) to identify possible areas of convergence in the bank ing sector of the euro zone have used cluster analysis of the degree of homogeneity. Fratzscher M. (2002) proposed to measure a degree of financial integration on the basis of uncovered interest rate parity, or on the income equality of identical financial assets denominated in different currencies (in the absence of any protection against currency risk). Phillips and Sul (2007) developed econometric conver gence tests by using a nonlinear representation of a time varying factor that removed restrictions techniques of time series analysis to test on stationarity using the unit roots test (Dickey -Fuller statistical method tests whether a unit root is present in an autoregressive model). Their formulation will allow to determine the longterm equilibrium in het erogeneous set of panel data and to show a wide variety of possible ways of convergence relating to one panel. Dowrick, DeLong (2003) showed that the least devel oped and poorest countries could not reach the richest countries level of income being in the "poverty trap" re flected in continuous low level of income of most house holds, insufficient level of savings and investment, low level of education and the high birth rate.
Russian authors exploring convergence process are few (Tolmachev 2012) and focus mainly on the regional dif ferences comparison by methods of econometric analysis. Thus, analyzing a wide range of publications devoted to convergence, one should note that within the diversity of the convergence study processes, there are no publications in the world economic mainstream with implication for insurance and pension markets convergence.
One of the most significant discoveries of the conver gence process -heterogeneity (diversity of composition and origin) in functional structures and management strategies adopted in these financial institutions, which leads to dif ferent potential synergies and risk potential. The hetero geneity in the financial market reflects: a) heterogeneity of the subjects in one or more attributes; b) heterogeneity of the operators on the composition and origin; c) financial institutions' adopted management strategies; d) the com position, quality and quantity of services included into the financial product.
Convergence on the contemporary financial market in our vision is demonstrated in the following effects: 1. Mixing of functions between the various institutions of the financial market. 2. Convergence creates an advantage in sales and in creases competition in the financial market. 3. The state represented by the governance authorities stimulates regulatory convergence. 1. Convergence promotes mixing of functions between the various institutions of the financial market. One of the most important trends in the financial market development in the late 1990s was the quantitative growth of institutional investors. The process of the global financial market insti tutionalization is expressed, above all, in strengthening of insurance companies, pension and mutual funds, invest ment Company's role.
Competitive advantage as a source of victory in the global competition was observed by M. Porter (1985). The key parameters to determine the company's competitiveness in the global system of world economic relations largely coincide with competitiveness growth at the national level (Mezhdunarodnyy biznes… 2014). According to M. Porter (1985), any company must choose a strategy to maintain competitiveness, either reducing costs below the one of the competitors, or differentiating their products with a focus on certain segments of consumers.
To form a competitive advantage in the classical sense of view on the financial sector is more difficult task than in the one in the real sector, as the financial product is easily cop ied, and does not require a long period of development and implementation. Consumers' priorities in financial service selection, brand recognition, access to services both geo graphically and commercially, wide range of services offered and financial services composability are considered to be competitive advantages in financial sector. Interpretation of convergence in this case is close to biological understanding of it, where it is treated as a "living organisms use different shapes or descent mechanisms to perform the same tasks" 3 .
Indeed since the early 1990s, the world has witnessed intensive mixing of functions between different sectors of financial market (Van den Berghe, Verweire 2000). We point out some of the facts that demonstrate the manifestation of this trend.
1) Endowment life insurance policy occupies the po sition of bank deposits. Nowadays, the financial services consumer could not separate these financial products, and the user defines them mostly by type of financial product provider considering it as financial planning service. A striking example is the endowment life insurance policy with the inherited sum insured. Endowment life insurance market creates competitive pressure for lowrisk instru ments in exchange trading, if the user chooses the socalled insurance savings program -unitlinked product with par ticipation of the policyholder in the insurer's profit gain. Developed countries' inflation, (relatively low in the last decade of XX c.) accompanied by high interest rate account (due to the regulation of exchange rates), played a positive role in the convergence process development involving in surance and pension markets. Competitive interest rates in the longterm endowment insurance programs and pen sion schemes compared to bank deposits program encour aged customers to invest in longterm savings schemes. Life insurance products and services appeared to be more attractive savings tool for consumers since the average per centage proposed by insurers (actuarial interest) in the long run was more competitive than the bank rates. Services and life insurance products become the most important instru ment of financial savings in many countries, and formed an essential basis for savings. Insurance companies are in cluded into a pool of savings services providers, which was the banks' monopoly for a long time (Shakhpazov 2012;FALIA 2013).
2) Pension deposit certificates. In the USA financial market regulation allows individual states to develop their own legislation in respect of insurance, pension and bank products. Even if the financial service is insurance policy and is under the insurance market regulation, it can be rec ognized at the same time as bank or investment (securities) product and is regulated by the banking legislation or by the securities market law 4 .
In 1994, FDIC (US Federal Deposit Insurance Corporation) permitted the processing and implementa tion of a new banking product with features of both insur ance policy, bank deposit and pension plan -retirement certificates of deposit. The regulator in the face of FDIC classifies the converged product as "insured" certificate and therefore insured for the amount of up to USD 100 000, but this insurance does not cover the liabilities of the bank paying customers life sum insured (Fein 2007). This service combines the features of banking, insurance and a pen sion product, which makes it difficult for regulation and supervision in the financial market such as the USA, orga nized on a functional basis. In Japan, the emergence of hybrid financial products was preceded by the abolition of legal restrictions to participate in a formation of savings by pension plans type (pension plans with defined benefits -DB) for all types of financial service providers, including banks and insurance compa nies. This phenomenon increased competition between financial intermediaries, and opposed them to Japanese pension funds (FALIA 2013). Thanks to the welfare increase and standard of living growth expectations the retirement savings budget limit increased, creating a need for addi tional longterm financial investments.
Longterm investments (reserves of insurance compa nies and pension funds), reduce the risk of the longterm financing investment projects failure (see Fig. 1). The OECD statistics provide data on the volume of autonomous pen sion funds investments. During the 2003-2013 total invest ments growth rate amounted almost 100%, including crisis of 2007-2013 data when the figure reached more than 64%.
3) Another area of mixing functions of the various sec tors of the financial market is known in literature as "ban cassurance" (the term bankassurance is used in English lit erature). Such a product as insurance endowment enables the policyholder to use the accumulated reserves as a credit resource that allows speaking about the penetration of in surers into the banking sector.
Insurers are experiencing pressure from the banks, fi nancial, investment, leasing, consulting, legal and trading companies that provide insurance services to its customers in conjunction with other services they need. A substantial integration of banking and insurance capital is observed. For the insurer it appeared to be a method of expanding a client base of insurance companies at the expense of the bank's clients, as well as the growth of insurance services offered together with a wide range of traditional banking services, each of which can be potentially insured.
Innovations relating to distribution channels of insur ance products are predetermined primarily by the process of convergence in the financial services sphere, as well as changes in the consumers' composition, quantity and qual ity. Usage of the financial intermediary network of the in surance company is going on in a reimbursable basis and will cause the further development of financial integration. Methods of sales infrastructure development, based on the capacity utilization of another financial intermediary does not bear a significant set of risks associated with more in novative ways of expanding. In fact, it is perceived by the customer as being conservative or as an organic develop ment of a financial intermediary business, with whom a cli ent communicates closely for a certain period of time. This advantage manifests itself particularly clearly in comparison with the financial supermarket activities via Internet sales channels where one observes anonymity, lack of control and legal regulation, which could deter potential clients from the insurance company.
Implementation of the "one stop finance" 5 technology may also be appropriate if the owner of a customer service network is also the owner of the wellknown market brand, which can significantly strengthen the insurance company position. For a customer, this scheme implementation will be a guarantee that a wellknown financial intermediary is willing to provide the insurance company with its services. This effect will represent the biggest interest to insurance companies, entering the new market. 4) Insurance transaction can be considered as hedging so far as its prior task is not the maximization of invest ments' effectiveness but risk reduction. In this case, the professional securities market participants are introduced to the insurers' area of responsibility, which priority is prop erty interests' protection. Thus, an increasing number of financial institutions refer to this way of financial strategic management problem solving.
2. Convergence creates an advantage in sales and increases competition in the financial market. For the world's largest pension and insurance markets actors, which today are fi nancial conglomerates, it is necessary to find out those mar ket niches where the highest possible sales of services could be offered by a conglomerate. From the strategic planning standpoint the conglomerate development and features of the proposed financial services should be distinguished as the most numerous and solvent segment of the market. We can assume that the most appropriate consumer -a contem porary employee at working age -is future retirees.
Here it is necessary to turn again to the global demo graphic trends: the largest stratum of the population through the next 20-30 years will be people of the retirement age. The OECD estimates the number of elderly people over 65 years of age (most common in the world retirement age) in 2050 will reach 350 million people in the OECD countries, compared to 53 million in 1950 and 199 million in 2014. Trends from 1950 to 2014 are that in all the OECD countries covered by investigation, the number of elderly people is increasing at a faster rate than the rest of the demographic cohorts. Russia is characterized by the same trend: in 1950 there were 6.3 million people over 65 years, in 2014 -18.5 million, and in 2050 the number of this group of the popula tion will be 27 million people. In China the forecast shows that in 2050 there will be almost as many elderly people as in all OECD countries combined (330 million).
It is this group of population which responds both con ditions of future financial convergence trends: quantitatively it will continue to increase, and today it has effective de mand. Hence financial institutions ought to develop a set of financial products that will interest the aging population. This will reduce the costs of establishing the direction "from scratch", will give an additional influx of technologies that are specific to pension funds (Adamchuk et al. 2003), and it will strengthen competition and struggle for customers in the insurance market.
There is a tendency in the competition for a customer among financial services providers -reduced insurance rates. The most significant reduction in premiums on pro longed insurance contracts, which is the basis for global and regional indices, is observed in Latin America (at 3%). Tariff reduction is also observed in the AsiaPacific region (2.4%) and in the continental Europe (1.3%). Thus, increased struggle for customers has caused the need to modify not only the supply, but also to expand the number of potential customers interested in the financial services offered (Khvostova 2014).
The pension system is an important element in the context of financial convergence consideration and its central element in the ongoing global financial crisis con ditions. Thus, the processes of financial convergence in the European countries (with the reorientation of most pension schemes of distribution to marketoriented mechanisms) is not the result of joint efforts of the different EU countries in order to find the best system for a postindustrial economic growth, but rather an unintended result of the measures taken to reduce the public debt and combating demographic changes with the help of the public services privatization (especially of pension schemes, where the government has shifted the main burden of responsibility on the participant of a particular pension system).
Pension funds occupy a very special place in the new financial institutions convergence due to the socalled cross share holdings of nonfinancial sector companies. These institutions are active players in the stock market investing capital into the financial instruments. New participants of the financial market businesses impose a certain rate of return conditions, focusing on shortterm operations and high profitability. There is an opportunity to put pres sure on the company's management, using, among other special "exit strategies" by the model of Hirschman and a negative assessment of the company's activities in the sale of its shares process. Initially, pension funds were purely American phenomenon, but further on as international institutional investors (see Fig. 2) extended its influence on foreign markets. Their activities on the financial markets Note: The data include sovereign pension funds according to the OECD classification. All types of pension plans (corporate, personal, mandatory and voluntary), excluding reserve are also included.  in Europe and Asia initiated a competition for global sav ings among recipient countries in these regions. The role of pension funds in the world's economies reflects their assets in relation to GDP. Analyzing the pension funds assets one could observe that in some countries they exceed the amount of GDP almost in 1.5 times. In Netherlands pension fund assets amount to more than 160% of GDP, in the USA, UK, Switzerland, and Australia, Finland its relative value ap proach to 90% of GDP and Russia's figure of 3.5% looks modest.
It is worth to pay attention to the distribution of the most important pension funds (Table 1). In reviewing the list of the countries of the world's largest pension funds, it is easy to see that only three of them are American, two -Japanese, and the Japanese national pension fund -Government Pension Investment -occupies the first place in the world by total assets (more than USD 1.1 billion.) and exceeds more than in three times the world's second largest pension fund -Norway's Government Pension Fund Global.
Japan and Norway have something in common, namely their pension funds are reserved and are actively investing on the open market. Chinese National Social Security Fund founded only in 2000 occupies 7th place in the world rank ing. The purpose of this fund -to accumulate money for endowment insurance payments. Its assets for a bit more than 10 years grew in ten times (in 2009, they amounted to USD 114 billion) and it is included into the top twenty of the world's largest pension funds. For comparison, the Russian Federation pension fund assets in 2012 amounted to 5.8904 trillion rubles (USD 184 million) (Pension Fund of the Russian Federation 2012).
Analyzing the process of financial convergence, dis cussed earlier, it is possible to hypothesize that the con vergence between the pension and insurance markets oc curs from both them. To our opinion, it happens because convergence offers advantages in the product approach, since it is located "at the crossroad" of the financial mar ket sectors where innovations appear. Pension funds as institutional investors offer their services on the pension market, attracting money from population at a longterm horizon and thereby providing for the economy a reliable source of cheap money in a longrun. Their competitors are banks so far as a typical household deposit rate is a litmus test for possible income from the investment. On the other hand, insurance companies, offering life, annuity and pension insurance products are the institutional inves tors, offering customers both the accumulation element, and simultaneously obtain insurance protection for the entire period of accumulation.
According to the OECD official statistics the private pension assets in insurance and pension schemes have in creased significantly through 2007-2012 period (see Fig. 3). The pension assets distribution by type of financing has hardly changed: on average more than 82% of pension assets of the countries included in the surveillance, are formed via pension funds, whereas insurance companies (the national average) -concentrate about 35%. The data analysis shows that pension funds are still the main managers of pension assets in almost all countries of the world. However, pension insurance products occupy a signifi cant share of the private pension assets in countries such as Denmark (61.5% in 2006 and62.4% in 2012), France (83.6% and 97.1%, respectively), Sweden (78% and 81.5%), Korea (44.8% and 68.2%), the USA (14.6% in 2012). The percentage of insurers is growing significantly. Penetration of insurers into the pension market goes on rapidly; there are countries where the growth rate penetration reached almost 300% (for example, for 2007-2012, their share in creased in Canada from 3.9% to 9.4%, and in Italy -from 9.7% to 15%).
The strong position of insurers in the pension sector of financial market is particularly evident in Denmark, France, South Korea and Sweden (Fig. 4). This happens primarily due to the peculiarities of regulation of the insurance and pension segments of the financial markets in these coun tries, namely: the lack of alternative solutions at the mo ment of: 1) employee's (who is a financial services consumer) decisionmaking in favor of a certain financial plan in the early career path; 2) selection of options for the payment of pensions after retirement. An additional factor is the requirement of mandatory pension insurance in these countries (as classified by the IMF -is the second pillar of pension). For example, in Denmark and Sweden, additional state pension schemes have many restrictions. In both countries there are well developed pension systems, including all available pillars of pensions, including the socalled "zero" (the payment at a cer tain age of social pension, needed to ensure the poorest and most vulnerable cohorts of the population). Contributions under such schemes are usually not provided and the size of payments is set by the state (for example, the cost of liv ing for pensioners). This pillar represents the minimum protection of the elderly population, which provides at least some funds, but it does not determine the length of working years and period of payment of insurance contributions to the pension system. However, the level of payments varies greatly from country to country. For example in Sweden, there are schemes based on a system of charging fees linked to the amount of salary. In Denmark and Sweden there are also additional mandatory state pension plans, such as the Labor Market Supplementary Pension (Arbejdsmarkedets Tillaegspension, ATP) in Denmark and the Premium Pension Authority (Premiumpensionsmyndigheten, PPM) in Sweden, working together with the private corporate pen sion funds. All four of the above countries have a voluntary third tier of pension provision to increase the employee's pension's amount, as well as pension schemes for selfem ployed people.
One should pay particular attention to France (see Fig. 5), where more than 97% of pension assets are invested via the insurance market and the assets of private pension funds account for about 0.3% of GDP. This is caused by the high replacement rates from man datory state pension system, which provides it at the level of 49.1%, and by the leading role of longterm savings life insurance in France (Official site of the Ministry of econom ics and finance of France 2014).

Governance -regulatory convergence
Another factor of pension and insurance markets inter penetration was encouraged by the stimulation of conver gence by different countries regulators that: firstly, ensured equal access of private capital to provide any services and stimulated open international competition, secondly, pro vided the legal abolition of restrictions on service providers from different sectors of the financial market on a joint financial technologies in the development of financial pro ducts that have similarities in the banking, insurance and pension sectors of the financial market. Insurance compa nies have the opportunity to take advantage of the banking and pension sectors of the financial market thereby offe ring the range of services. Another factor that initiated the emergence of the financial market after the liberalization of the financial legislation of new institutional investors was the beginning of the pension systems reform in Europe, where traditional systems of payasyougo transformed into a marketoriented schemes.
The liberalization of financial legislation in some coun tries has allowed banks and insurance companies to hold mutually significant stakes of shares. In 1985 the first steps towards a merger of the banking and the insurance capital in the UK and France were made. British insurance company Standard Life has invested in Bank of Scotland, and the French GAN acquired stake in the bank Credit Industriel et Commercial (CIC). Germany began to move in the same direction in 1986, and Italy -in 1990 when it adopted a Amato Law (Banca d'Italia 1990) allowing banks to invest their capital into the insurance companies (OECD 2015a).
The USA Glass -Steagall Act, enacted in 1933 in the con text of antitrust laws prohibited banks from engaging in in vestment and insurance activities. Financial Modernization Act of the USA (12 November 1999) replaced Glass -Steagall Act and known as GrammLeachBliley Financial Modernization Act (The GrammLeachBliley Act 1999) revolutionized the American banking system. According to the law on financial modernization the bank holding company was able to transform into a financial holding company. It may own commercial and investment banks and insurance companies. For its part, investment banks and insurance companies were able to create (with the ap proval of the US Federal Reserve) financial holding compa nies. The provisions of the law on financial modernization allow American banks to become universal banks that acquired additional comparative advantage towards other world financial monsters which can provide commercial and investment banking services, and insurance services.
Insurance company and pension fund have advantages of its own in the struggle for "pension clients' money" (see Table 2). The share of insurance companies and pension funds accounted for a significant volume of assets in the financial market in the Euro zone. Nonbanking financial institutions increased its influence significantly in the past 15 years. Today, even the statistics in the EU in the direction of the "retirement money" analysis is presented under the head ing of ICPF (insurance companies + pension funds). ICPF assets in 2009 amounted to more than 12% of the financial market in the Euro zone. For example, insurance companies and pension funds concentrated 18% of government debt securities, 28% of the mutual funds shares. In addition to the active process of investment in the economy obligations of the owners play an important role being an important component of household wealth in Europe (it accounts for more than 30% of household savings). These figures are comparable only to that of deposits, and they actively com pete with traditional banks for the savings of the population (Insurance corporations and… 2015).
Who in this context has more to gain or who, on the contrary, is under the threat of additional risks?
Additional benefits in the process of financial conver gence could be gained by pension fund as a component of a financial conglomerate namely: 1) Pension funds in most countries of the world in contrast to the insurers do not pay corporate inco me tax due to the legal form of a nonprofit orga nization. 2) Insurers must include a certain percent of profit in the cost of an insurance product (as their legalor ganizational form implies), while pension funds are not intended to make profit. 3) Pension funds do not have the requirements of the regulator to the solvency margin.
4) The cost of new customers attracting for insurers is higher than for pension fund as the majority of the latter are using mandatory pension schemes and it could be considered as a competitive advantage. 5) Pension funds has a marketing advantage, as they are positioned as profits "accumulators" for clients, while in insurance profit goes to the owners of in surance entity. From the perspective of financial stability provision ICPF have a lower level of liquidity risk due to longterm schemes and specific design of contracts. At the same time the decline in the value of assets and ICPF underfunding can negatively impact the real economy. This is true with respect to the low interest rate in the long term as it is taken for future obligations discount. An additional source of risk is the system risk due to the increasing interpenetration of financial markets and financial intermediaries, as well as the special role of reinsurance. As a result, as the pro cess of financial convergence is going on, former leaders of it are displaced and supplemented by other leaders and participants -insurance companies, investment and pen sion funds, etc. developing into the special form of financial integration -financial conglomerate, which now exists in a multitude of functional structures (Dierick 2004). Thus, the evolution of the financial sector forced to pay attention to the emergence of new risks associated with the convergence of the financial market different sectors.
In 2009 the European Commission presented a report on the possible direction of the European economy after the crisis recovery (European Commission 2010). The report paid special attention to the reform of the financial market, namely the maintenance of a stable demand for financial services, creating new jobs and investments growth 6 . The main directions of the new deal regulation of the financial market, according to a report in the next decade will be the centralization of governance and supervision in the European Union, the final removal of barriers to the free movement of capital, increasing the level of convergence between Member States, with special attention to the im provement of consumer protection and EU population's financial literacy implementation.
This report also stresses that the harmonization of na tional financial laws overrides unification, so the basis for the legal regulation of the EU are still stay the EU Directives. From a systems perspective the pension system is comple mentary to the financial system for the following reasons: -pension system of any country is the channel of the cash flows of the population (savings), or "Long mo ney"; -pension system institutions play a central role in cor porate governance (notably in pension funds, aimed at increasing of the shareholders welfare); 6 European Commission (2010).
-this system encourages employees to invest in the capital of any industry. Such insurers and pension funds activity on the financial market, mutual penetration in the traditionally "friendly" markets of other players witness about the convergence on the supply side. That is insurance companies and pension funds are becoming providers of similar financial services. All this in turn increases competition in the already difficult financial, political and economic landscape in the condi tions of low interest rates in the world, strong volatility on the stock markets, changes in regulation and supervision in the direction of tightening the requirements for solvency and so on.
Thus, the main factors contributing to the beginning of the penetration of insurers into other financial sectors, and especially in the sector of pension savings were demograph ics, investment/savings and demand changes.

1.
Beginning from the 1980s one could observe the rate of population growth decrease and significant life expectancy increase. These trends have led to an aging population and changes in its age structure towards increasing the share of pensioners and, consequently, resulted the need to reform the social security systems and public pension schemes in different countries and refocus them to the marketbased financial convergence model. At the same time thanks to the welfare growth, pension savings budget increased, and enabled pro fessional institutional investors, which have extensive experience in the financial markets to work with small individual investors for the of mutual benefit. Institutio nal investors accumulate large sums of money and opti mize the costs of administration; customers are offered complex integrated pension and insurance services at very affordable prices. 2. Institutional investors' landscape is rather heteroge neous. There is a big difference between them in the size and concentration level in different countries and regions of the world economy. In the USA and Canada the pension market is characterized by large insurance and pension institutions as well as a large number of small local diversified funds that invest heavily accor ding to the type of direct investments. More than half of the world's largest pension funds own a quarter of global pension assets are located in North America but in Europe pension assets are relatively small and it has fewer large pension funds and higher assets of insurance companies for life insurance and European insurance companies often have a larger market share than the pension funds. In the AsiaPacific region, the Austra lian pension funds assets are large enough, and they are mostly invested in infrastructure projects through the special infrastructure funds. In Japan, most of the pension assets is managed by the government and part of the corporate pension funds. 3. Pension funds, acting as institutional investors, are the leading players in the contemporary global financial market. The structure of the investment portfolio of the largest pension funds are highly diversified and include the maximum number of different assets available at the financial market. Among these assets are: 1) highly liquid monetary liabilities; 2) bonds (in developed coun tries in 2011 up to 33% of the pension fund portfolio were invested in bonds); 3) stocks (pension funds ope rating under defined contribution -DC, schemes and about one third of the assets are invested in this tool); 4) futures and options. These instruments are mainly used to fund the insurance of financial risks. 4. Competition at the financial market causes the expan sion of a number of services offered by various organi zations: banks, insurance companies, pension funds, investment companies and so on which in the name of financial conglomerate offer a wide range of services not directly related to their core businesses. The most inte resting areas from the point of future income genera tion are pension insurance products, always demanded both by consumers (customers of financial institutions), and by the sellers (pension funds, insurance companies, banks, etc.). 5. The mixing of financial institutions functions from the insurance, pension and banking sectors, increased competition for customers, which manifests itself in the insurance tariffs reduction, led to the modification of demand and supply, expand a number of potential customers (future pensioners the quantity of which in the next 50 years is projected to increase dramatically) interested in complex integrated services. Thanks to the welfare and standard of living growth expectations, the budget limit of retirement savings increases as well causing need for creating additional longterm financial investments. Widespread liberalization of insurance and pension services trade performed under the influence of a unified legislation formation in the framework of regional integration systems and adapt to the statesnon members of regional integration groups. Remo ving regulatory restrictions on pension and insurance coverage (the formation of a single European pension market) are another incentive for the convergence of the pension and insurance markets.