NETHERLANDS - Dutch pension funds may continue to reinsure their risk with insurance companies as the practice still offers added value, according to social affairs minister Piet Hein Donner.

In a letter to the Dutch parliament, the minister said he would ease the rules of the financial assessment framework (FTK) by exempting reinsured schemes from having to create a financial buffer for the credit risk posed by their insurer.

However, pension funds must continue to keep the required minimum financial reserves of 1%, based on a coverage ratio of at least 101%.

Donner said he came to his conclusions after reading a report from consultancy Ortec Finance.

The survey found that pension funds consider reinsurance to be an added value, as it provides "risk-reduction in combination with sufficient control" and a "balanced governance structure".

Reinsurance can also meet expertise requirements for pension funds' board members, improve implementation and increase flexibility, the study found.

Under the rules of the Pension Act, reinsured schemes face a funding shortfall, as the financial crisis has hurt the creditworthiness of insurers.

At present, this ought to trigger recovery measures, such as rights cuts, despite the fact insurers can fully comply with their obligations, the minister said.

Earlier this year, he granted reinsured pension funds a temporary exemption from submitting a recovery plan, pending the outcome of the survey.

In his letter, the minister further stressed that a number of fully reinsured pension funds were considering switching to directly insured arrangements as a result of the FTK requirements.

A large number of company pension funds currently have reinsured pension assets.