DNB published results of the EIOPA stress testing exercise for the Dutch pensions sector. The results show that the financial position of the Dutch pensions sector is vulnerable to financial market shocks. A highly adverse stress scenario, which involves sharp equity price declines and rapidly widening spreads, showed that the year-on-year impact of a financial market shock on the Dutch economy through the pension funds is limited, but will be felt for many years.
DNB disclosed the list of the stress test participants, which represent 60% of the Dutch pensions sector. The results of the stress test, which looks at the figures as of year-end 2018, show that Dutch pension assets appear to be vulnerable under a major shock. In such a scenario, the capital positions of Dutch pension funds are severely hit. This impact is due to the large portfolio of variable-yield investments they maintain to fund their indexation ambition. On average, the funding ratio of participating pension funds drops by nearly 23 percentage points, which roughly equals their required own funds. This means that the pension funds could have absorbed the impact of the shock almost fully using their buffers, had they maintained the required own funds. With the buffer lacking and the assumed funding ratio averaging 99%, the shock forces them to apply immediate benefit curtailments.
The stress scenario sees assets of the Dutch premium pension institutions, or PPIs, drop by nearly 30%, primarily due to the equity shock. The premium pension institutions tend to allocate a large proportion of their investments to variable-yield assets on account of the relatively high share of young pension scheme members they represent. The stress test also considered the impact of the stress scenario on replacement ratios (excluding state pensions). The outcomes showed a large variety because the premium pension institutions differ widely.
Related Link: DNB Analysis of Results
Keywords: Europe, Netherlands, Insurance, Pensions, Stress Testing, Defined Benefit, Own Funds, Defined Contribution, DNB
Previous ArticlePRA Keeps Systemic Risk Buffer Rates for Ring-Fenced Banks Unchanged
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.