Risk-Based Supervision of Pension Funds

Aurelie

Description

'Risk-Based Supervision of Pension Funds' provides a review of the design and experience of risk-based pension fund supervision in countries that have been leaders in the development of these methods. The utilization of risk-based methods originates primarily in the supervision of banks. In recent years it has increasingly been extended to other types of financial intermediaries, including pension funds and insurers. The trend toward risk-based supervision of pensions reflects an increasing focus on risk management in both banking and insurance based on three key elements: capital requirements, supervisory review, and market discipline. Although similar in concept to the techniques developed in banking, its application to pension funds has required modifications, particularly for defined contribution funds that transfer investment risk to fund members. The countries examined-Australia, Denmark, Mexico, and the Netherlands-provide a range of experience that illustrates both the diversity of pension systems and the approaches to risk-based supervision, and also presents a commonality of focus on sound risk management and effective supervisory outcomes.

Sujets

• Retraite
• International Bank
• Risk management
• Solvency
• Stress testing
• Government debt
• Supervision

Informations

• Publié par: world-bank-publications
• Publié le: 01 avril 2008
• Nombre de lectures: 25
• EAN13: 9780821374948
• Langue: English
• Poids de l'ouvrage: 9 Mo

Extrait

Brunner, Hinz, Rocha
Risk-Based Supervision of Pension Funds Emerging Practices and Challenges
“Supervising private pension systems is a first-order policy issue. This inspiring and insightful
book raises private pensions to the level of banks and insurance companies in the field of
risk-based supervision. Risk-Based Supervision of Pension Funds should be required reading
for financial regulators and supervisors throughout the developed and developing world.”
—Mihaly Erdos
Former Chair of the Occupational Pensions Committee, Committee of European Insurance
and Occupational Pensions Supervisors
Deputy Director General, Hungarian Financial Supervisory Authority
“Risk-Based Supervision of Pension Funds provides a valuable contribution to the issues of
how to successfully apply risk-based supervision to the pensions sector. It examines the
implementation of risk-based methods in a number of countries that have pioneered
differing risk-based models, and it provides detailed analysis of the impact those models
have on the conduct of supervision and the behavior of pension entities.”
—Ross Jones
President, International Organisation of Pension Supervisors
Deputy Chairman, Australian Prudential Regulation Authority
DIRECTIONS IN DEVELOPMENT
Finance
Risk-Based Supervision of Pension Funds provides a review of the design and experience of
risk-based pension fund supervision in countries that have been leaders in the development
of these methods. The utilization of risk-based methods originates primarily in the supervi-
sion of banks. In recent years it has increasingly been extended to other types of financial Risk-Based Supervision of
intermediaries, including pension funds and insurers. The trend toward risk-based supervision
of pensions reflects an increasing focus on risk management in both banking and insurance Pension Fundsbased on three key elements: capital requirements, supervisory review, and market discipline.
Although similar in concept to the techniques developed in banking, its application to
pension funds has required modifications, particularly for defined contribution funds that Emerging Practices and Challenges
transfer investment risk to fund members. The countries examined—Australia, Denmark,
Mexico, and the Netherlands—provide a range of experience that illustrates both the diver-
Greg Brunner, Richard Hinz, and Roberto Rocha, Editors
sity of pension systems and the approaches to risk-based supervision, and also presents a
commonality of focus on sound risk management and effective supervisory outcomes.
ISBN 978-0-8213-7493-1
SKU 17493Risk-Based Supervision of Pension FundsRisk-Based Supervision
of Pension Funds
Emerging Practices and Challenges
Greg Brunner, Richard Hinz, Roberto Rocha, Editors© 2008 The International Bank for Reconstruction and Development / The World Bank
1818 H Street NW
Washington DC 20433
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This volume is a product of the staff of the International Bank for Reconstruction and
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ISBN-13: 978-0-8213-7493-1
eISBN: 978-0-8213-7494-8
DOI: 10.1596/978-0-8213-7493-1
Library of Congress Cataloging-in-Publication Data
Risk-based supervision of pensions : emerging practices and challenges / editors, Roberto Rocha,
Greg Brunner and Richard Hinz.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-7493-1 — ISBN 978-0-8213-7494-8 (electronic)
1. Pension trusts—Cross-cultural studies. 2. Pension trusts—Management—Cross-cultural
studies. 3. Risk. I. Rocha, Roberto Rezende. II. Brunner, Greg, 1957– III. Hinz, Richard P.
HD7105.4.R57 2008
331.25'20681—dc22
2008003717
Cover photo by Altrendo Nature/Getty Images.
Cover design by Quantum Think.Contents
Preface ix
Acknowledgments xiii
Contributors xv
Abbreviations and Acronyms xvii
Chapter 1 Risk-Based Supervision of Pensions:
The Experience of Early Adopters 1
Gregory Brunner, Richard Hinz, and Roberto Rocha
Chapter 2ension Funds
in the Netherlands 51
Richard Hinz and Rein van Dam
Chapter 3 Risk-Based Supervision of Pension
Institutions in Denmark 95
Rein van Dam and Erik Brink Andersen
Chapter 4ension Funds
in Australia 135
Graeme Thompson
vvi Contents
Chapter 5 Risk-Based Regulation and Supervision of Pension
Funds in Mexico 173
Solange J. Berstein and Rómulo Chumacero
Index 209
Figures
1.1 The Basic Risk Management Architecture 6
1.2 Distribution of the Duration of Dutch Pension
Fund Fixed-Income Investments 35
1.3 Asset Composition in Danish Pension
Companies, 1999–2004 36
1.4 Maturity of the Public Debt Stock and
Government Securities in the Riskier Portfolio 40
1.5 Shifts in the Efficient Frontier and
Actual Risk-Return Combinations 41
1.6 Basic and Aggressive Portfolios: VaR Limits and
Actual VaRs, 2005–06 42
2.1 Asset Allocation of Pension Funds in
the Netherlands, 1980–2005 55
2.2 Funding Ratio of P, 1988–2006 57
2.3 The Basic Concept of Solvency II 67
2.4 Overall Schematic of FIRM 69
2.5 Aggregation of Scores in FIRM 75
2.6 Accumulation of Scores 76
2.7 Forecast of Male Life Expectancy
in the Netherlands 78
2.8 Recovery Periods 85
2.9 Distribution of the Duration of
Fixed-Income Investments 92
3.1 Asset Allocation 102
3.2 10-Year Government Bond Yields and
Guaranteed Interest Rates 105
3.3 Regulatory Structure 107
3.4 Staff of the Danish FSA (full-time employees) 107
3.5 Asset Composition in Danish Pension Companies 127
4.1 Risk Probability/Impact Rating Framework 153
A.4.1 APRA: Organizational Structure 2005 170Contents vii
5.1 Siefores’ Portfolio (December 2000) 190
5.2ortfolio (September 2006) 190
5.3 Real Rate of Return of Basic Siefore 1
and Basic Siefore 2 191
5.4 Organizational Structure of CONSAR 193
5.5 Investment Performance and Efficient
Frontier, 2005–06 202
Tables
1.1 The Three Pillars of Basel II 4
1.2 Main Characteristics of the Four Private
Pension Systems, December 2005 8
1.3 Factors Motivating the Adoption of Risk-Based Supervision 10
1.4 Main Components of Risk-Based Supervision in
the Four Countries 15
1.5 Regulatory Requirements on the Risk
Management Architecture 18
1.6 Risk-Based Solvency Requirements 20
1.7 Risk-Scoring Methods 26
1.8 Roles of Market Discipline, Third Parties,
and Disclosure 30
1.9 Asset Allocation of Dutch Pension Funds, 2001–05 34
1.10 Changes in the Asset Allocation of Life Companies
and Pension Funds 36
1.11 Simulation Results of Change in Interest Rates 37
1.12 Average Composition of the Aggressive Pension
Portfolio in Mexico 41
2.1 Elements of Risk Controls in FIRM 72
2.2 Elements of Risk-Transcending Controls in FIRM 73
2.3 Risk-Mitigating Group Functions in FIRM 73
2.4 Interest Factors 81
2.5 Contributions and Membership in Dutch
Pension Plans, 2001–05 89
2.6 Asset Allocation of Dutch Pension Funds, 2001–05 91
3.1 Pension Assets 97
3.2 Pension Contributions 98
3.3 Investment Returns of Pension Institutions, 1999–2004 102
3.4 Interest Rate Risk 120
3.5 Change in Asset Allocation by ATP 126viii Contents
3.6 Change in Asset Allocation of Life Companies
and Pension Funds 127
3.7 Simulation Results of Change in Interest Rates 128
4.1 Superannuation Funds: Type, Number and Size,
December 2005 139
4.2 Superannuation Funds: Asset Allocation 140
4.3 Supervisory Attention Index 156
4.4 Supervisory Stance (SOARS) 157
5.1 Evolution of Investment Regulation 185
5.2 Certification for Derivative Transactions 188Preface
Risk-Based Supervision of Pension Funds grew out of a project that