Norwegian regulator explains stress tests on 17 'most vulnerable' pension funds
NORWAY - The Norwegian financial regulator Finanstilsynet has sought to explain recent stress tests conduced by 17 pension schemes at the request of its insurance division.
Speaking to IPE, head of the insurance division Runa Sæther noted that August's recent market turbulence was not as severe as that seen in the summer of 2008, when all of the country's pension funds were asked to comply with stress tests by the regulator.
The tests were ordered based on how each scheme's equity exposure related to its own capital buffer at the end of June, Sæther explained.
"Even though these pension funds' risk exposure seem to be moderate compared to their buffer based on reported figures at 30 June 2011," she said, "Finanstilsynet wanted to get an impression of how these presumably most vulnerable or exposed pension funds [had] been affected by the market turbulence lately."
"The reported stress tests at 31 August in general showed a moderate risk level in the selected pension funds even though pension funds' buffers have been reduced," she added, noting that some of the schemes involved had lowered their equity exposure after the end of June, while others stressed to Finanstilsynet that they increased their monitoring of the market during volatile periods.
One of the schemes reportedly involved in the stress tests was the Norwegian pension fund for energy company Statoil, which according to the most recent annual report had assets under management of NOK51bn (€6.5bn).
However, according to Christian Fotland, director at consultancy Gabler Wassum, the concern for schemes was not the volatile equity market, but rather falling interest rates.
"As far as we're concerned, if you look at the three to four year duration that a pension fund typically has in assets, as government bonds kept sliding downwards on the yield, there are some large unrealised gains on their bond book," he said. "That offsets, to a certain extent, any equity losses you might have."
However, Fotland stressed that the problem would soon change as the yield on many government bonds had fallen below swap rates, as recently highlighted by Cardano.