NETHERLANDS - The Dutch Actuarial Association has advised pension funds they can now invoke an exemption rule of Dutch pensions law which allows them to use the bond curve rather than the swap curve to calculate the value of their liabilities.

In a letter to its members, the association wrote the Dutch pension fund regulator DNB will allow funds to use an "adapted curve", though when doing their sufficiency test they should name the curve which has been used and explain how it is different from the swap curve.

"The effect on the contents of an average pension fund or insurance portfolio can be material," warned the association.

The market value of the liabilities is based on the actuarial test of sufficiency, in which the interest curve is crucial. Under the pension law, the DNB usually requires actuaries to use the swap curve.

However, because of liquidity problems in the swap market, the swap curve is now much lower than that of the government bond curve, making it less suitable for valuation purposes.

Though a rise in interested rates is widely expected, IPE had already learnt the pension fund regulator and central bank DNB is debating whether funds should be allowed to choose between the swap curve and the more stable bond curve.

Hewitt Associates was one of several consultants last week to warn pension funds are being disadvantaged as liabilities are being discounted in the swap curve, instead of in the government bonds' curve where performance is healthier.

A spokesman for the DNB at that time declined to comment on any such discussions.

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