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Dutch regulator unveils supervisory framework

NETHERLANDS – The Dutch pension and insurance regulator has unveiled the so-called Financial Assessment Framework, or FTK – which lays out the new supervisory framework that will come into effect for Dutch pension funds and life insurers in 2006.

The PVK, the Pensioen- & Verzekeringskamer has sent the FTK, or Financieel Toetsingskader, to funds and insurers for consultation.

The FTK is meant to assess the current status of the sector and future issues to be dealt with. It has already gone through several rounds of consultation.

According to the PVK, the new FTK will make it easier for small pension funds, while larger schemes can still keep to their own internal financial systems.

According to the 135-page document, small pension funds, with a low risk profile, will be allowed to assess their financial situation in an easy way.

This will be only applicable if pension funds don’t have more than 25% of their portfolio in equities. According to PVK chairman Dirk Witteveen, the FTK should provide to certain pension funds an easier financial reporting scheme. As for larger funds, the FTK states that they can keep to their current financial reporting models, if the latter has been approved by the PVK.

One important aspect of the FTK will be the changing role of the PVK for pension funds and insurers.

As the FTK will become operational for pension funds in 2006, the Dutch government has stated that there will be a lower solvency measurement of 97.5%.

Maarten Gelderman, the PVK’s head of quantitative risk management, stated that the solvency standard, which is a value at risk model, is based on a once-in-40-year default scenario (or -2.5%).

If this is the case, the PVK will assess if a change in premiums is necessary. The solvability risk of a particular fund is based its investment portfolio and inflationary pressures. For all pension funds liabilities will be accounted for against market value interest.

The 97.5% measure means that the Dutch pension funds will have a lower reference than international standards. If pension funds are not able to comply – then the PVK will intervene.

The PVK/DNB says the plan is meant to offer a better control mechanism to counter and assess national and international developments.

Specific aspects targeted are growing international competition, sectoral and branch issues and possible new investment opportunities.

As the PVK has witnessed a growing coherence of supervision systems in Europe, the FTK should become the instrument to keep the Dutch pension system internationally at the top.

The FTK also targets to lower the overall administrative pressure on funds. After that all issues have been dealt with, the FTK will become part of the new Pension Law, which is expected to be presented to the parliament in 2005.

Already, according to the PVK, pension funds can adopt the necessary changes before; the FTK will give the necessary directives. As the FTK wants to increase transparency of investments portfolios and liabilities, this will represent a more clear picture and system for pension funds.

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