Risk-Based Supervision of Pension Institutions in Denmark
This paper examines the move towards risk-based supervision of pension institutions in Denmark. Although Denmark has not adopted a comprehensive model to assess risk it has developed a number of building blocks which it uses for risk-based assessme...
Main Authors: | , |
---|---|
Format: | Policy Research Working Paper |
Language: | English |
Published: |
Washington, DC: World Bank
2012
|
Subjects: | |
Online Access: | http://documents.worldbank.org/curated/en/2008/02/9045914/risk-based-supervision-pension-institutions-denmark http://hdl.handle.net/10986/6594 |
Summary: | This paper examines the move towards
risk-based supervision of pension institutions in Denmark.
Although Denmark has not adopted a comprehensive model to
assess risk it has developed a number of building blocks
which it uses for risk-based assessment. The motivations
for improving risk assessment include a desire to identify
emerging problems, and concerns about the solvency of
pension institutions. In Denmark there is extensive use of
guaranteed minimum returns in both the accumulation and
payout phases which create substantial obligations on
pension institutions, and focus attention on the integrity
and solvency of the institutions which provide them. In
conjunction with freeing up investment restrictions and
moving towards market valuation of assets, the supervisor
has introduced a 'traffic light' stress test model
which calculates the effect of several market scenarios -
the red test which is the more plausible and the yellow test
which is possible but less likely. In addition to the use of
the traffic light system, there has been a growing emphasis
on the adequacy of internal risk control systems and greater
reliance on market discipline. Pension institutions have
sought to reduce their exposure to market volatility by
better matching of assets and liabilities. There is a much
better understanding of the risks inherent in the pension
institutions' portfolios, and there has been a
substantial increase in the use of hedging instruments. |
---|