Sufficiency of the FTK solvability assessment

  • Gerke Bouma Gerke Bouma

After a brief discussion of the FTK and its background, I analyze the performance of the required reserve that results from the FTK solvability assessment. This is done by simulating the change in the value of the assets and liabilities of pension funds by means of a GARCH-BEKK model that is developed in the text, as well as anexisting ALM model developed by Watson Wyatt. It is shown that in many cases the required reserve performs below its intended reliability level. This is caused by an underestimation of interest risk.

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.

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