Regulatory capital requirements under FTK and Solvency II for pension funds

  • Fabienne Spaan Fabienne Spaan

This thesis investigates the effect on the Regulatory Capital Requirement for a pension fund under the Financial Assessment Framework and under Solvency II. We also test whether the Regulatory Capital Requirements which we find under the Financial Assessment Framework and Solvency II are indeed sucient according to models based on historical data. This means that the probabilityof a funding ratio below 100% should be 2.5% under the Financial Assessment Framework and 0.5% under Solvency II. The result of the investigation is that replacing the current legislation with Solvency II, leads to an increase in the Regulatory Capital Requirement of about 10% for our specific pension fund. In order to test the probabilities of a funding ratio below 100%, 10,000 possibledevelopments of the required funding ratio have been simulated for two different ALM models: the Hoevenaars model and GAM model. After reducing the risks in the legislations to the risks which are present in the ALM models, we find that both the Financial Assessment Framework and Solvency II, underestimate the total risk according to both ALM models for our specific pension fund. However, the GAM model is more prudent than the Hoevenaars model. The results of the Hoevenaars model are more in line with both legislations. We concludethat according to the Hoevenaars model, the Financial Assessment Framework slightly overestimates the risk for stocks and slightly underestimates the risk for government bonds and corporate bonds. Finally, we find that according to the Hoevenaars model, the risk for commodities is underestimated under the Financial Assessment Framework and Solvency II.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

MORE ABOUT NETSPAR


Mission en strategy           •           Network           •           Organisation           •          Magazine
Board Brief            •            Actionplan 2023-2027           •           Researchagenda

ABOUT NETSPAR

Our partners

B20231704_PGIM_Blacklogo2
B20221103_Zwitserlevengrayscale
B20231704_PensioenFederatie_Blacklogo
B20231704_DNB_Blacklogo
B20160708_tilburg university
View all partners