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Special Report

ESG: The metrics jigsaw


Dutch funds 'vulnerable'

Dutch pension funds’ solvency ratios could be hit by any number of “plausible macroeconomic shocks” that have been modelled by the International Monetary Fund in a series of hypothetical ‘stress tests’.
“Pension funds’ solvency ratios fall below 100% in nearly all the tests carried out,” the IMF said. “In the most extreme scenario the solvency margin, on average, declines to 76.4% from 103.1%.”
“Pension funds are more sensitive to market risks because they hold a greater proportion of equity and are more internationally exposed compared to insurance companies,” the Washington-based body said. “In addition, results are more volatile because of longer duration fixed income assets that are marked to market.”
The IMF has stress tests covered interest-rate, currency and various other market scenarios.
“The stress tests underscore the continued sensitivity of insurance companies and especially pension funds, to equity, interest-rate, and currency risks, although the potential for spillover to the banking system seems moderate,” the IMF said in a report on the Netherlands.
The tests were carried out by major financial institutions, based on methodologies and scenarios agreed between the authorities and the IMF’s own Financial System Stability Assessment team.
The tests covered banks, insurers and pension funds. “Tests were of two forms: single factor sensitivity tests, and multi-variable scenarios designed to simulate internally consistent movements in the relevant macro variables.”

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