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Dutch PVK set out views on pensions solvency

NETHERLANDS - The Dutch pensions and insurance regulator PVK (Pensioen & Verzekeringskamer) has published in English its White Paper on solvency tests, laying out its approach to the measurement of technical provisions for pension plans as well as the basis for consistent valuation of assets and liabilities.

The PVK says the purpose of the solvency test is to check whether there is a high degree of probability that the value of a pension fund’s assets will cover the estimated value of liabilities after one year. For a fund to pass the test, the PVK is proposing that it will have to be 99.5% sure that this will be the case.

The White Paper aims to provide a framework by which the liabilities and assets of Dutch schemes can be assessed and compared on a realistic level, taking their actual market value as the point of departure.

It also seeks to enable consistent treatment between pensions and insurance products, whilst emphasising the use of risk analysis and management tools to create clear solvency indicators on the balance sheet of both.

The regulator focuses particularly on the potential impact of “unexpected risks” such as underwriting risk, market risk and credit and liquidity risks as part of its safety assessment.

In the document, the PVK also asks the country’s pension funds for feedback on the guidelines in order that it can test its solvency proposals. Comments by pension funds are possible until May 9.

The comprehensive document, issued in Dutch at the beginning of March, comes after the regulator wrote a controversial letter on coverage levels to schemes last September. It warned those pension plans whose coverage levels had fallen below 100% that they had a year to rectify the situation.

There are a number of steps still to be taken before the White Paper makes it into regulation. After the PVK has evaluated all the comments and feedback it will write out a complete financial assessment framework, not only for solvency tests but also for so-called continuity tests. This should happen by the summer of this year.

Subsequently there will be a formal consultation with the representatives of pension funds, insurance companies, actuaries and accountants and investment analysts. By 2004, the PVK expects to put forward the concept and rules, to be followed by another formal consultation and then enforcement by the supervisor.

The White Paper and response form are both available in Dutch and English on the PVK’s website at www.pvk.nl.

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