More cheers than jeers for DNB
Until their merger in 2002, the DNB had been the supervisor of credit institutions, whilst the PVK acted specifically as the watchdog for pension funds and insurers. According to DNB however, their separate tasks fitted less and less, because of mergers, which created large institutions with both bank and insurance operators. At the same time, there were considerable similarities in the kind of supervision by DNB and the PVK, and the risks run by the monitored institutions.
The new entity - which continues with the name DNB - is to supervise the health of the financial institutions and the financial sector. The part of DNB which supervises the pensions industry, reports to the ministry of social sffairs.
“In general, we are satisfied with the new regulator DNB,” said Jeroen Steenvoorden, shortly before he left his role as director of the Foundation of Company Pension Funds OPF in December. “And we are not worried about a lack of supervision. On the contrary, the tightened-up regulations are sometimes accompanied by too much supervision.”
Steenvoorden has not only noticed an increase in expertise amongst DNB’s staff, but also a scaled-up approach. “The PVK’s work until 2000 used to be more specifically aimed at the pensions industry. Nowadays, we need to look more thoroughly in order to find the issues which are relevant to us,” he explains.
Because it is less made-to-measure, the new supervisory regime has become more difficult to deal with for the smaller pension funds, Steenvoorden thinks. “But on the other hand, under the new financial assessment framework (nFTK), the schemes can choose between three levels of the solvency test, which vary from complicated to simple. The simplest model however requires a larger financial buffer.”
“After initial scepticism about the planned merger, we have reviewed our opinion. We are satisfied with the new regulator now,” summarises Peter Borgdorff, director of the Association of Industry-wide Pension Funds VB. “The DNB has softened its sharp focus on solvency and a quick recovery of funding ratios. And it has started looking at macro economic effects of its policy as well. The regulator’s scope has widened since the merger.”
Borgdorff has not seen an increase in the DNB’s expertise yet. “The total specialised knowledge has been diluted, we think. But in order to compensate for this, the regulator has started an admirable training program for its employees. The pension funds are contributing to this education as well. One industry-wide scheme is already offering work practice for DNB’s supervisory staff. We are encouraging other pension funds to follow this example.”
Despite the praise, VB is on some points still critical of the new regulator. “DNB tends to look too much at the risks, instead of the opportunities. And we still aren’t satisfied with the FTK’s longevity risks, and the one-year recovery period in case a coverage ratio drops under 105%.
“At the end of the day, without a supervisor the system can’t operate. And a proper watchdog can of course never be your friend,” he says.
“The new set-up of DNB as a regulator is an improvement. It has widened its scope and it has more expertise for supervision,” says Roland van den Brink, chairman of the Actuarial Society, and CIO/investment director of the industry-wide Pension Fund for the Metal and Electrotechnical Engineering Industry PME. Although he admits he doesn’t have any examples yet, he says he is hoping the watchdog won’t apply the same supervision model for pension funds as the one for banks.
“Because DNB has been busy with its internal reorganisation and the introduction of the FTK , it has hardly had time for developing a vision,” van den Brink says. “But over time, they have become much better in making clear what matters to them.”
PME’s CIO does not mind a strict supervision. “Supervised institutions will always claim that the supervisor is too pushy with new rules. But if the DNB gives in, it can’t operate properly as a regulator,” he says. “What matters is a clear distinction between politicians who set the rules, and the regulator which controls the rules”.”
ABP’s financial policy director Olaf Sleijpen is even more positive about the new regulator. “The merger of DNB and PVK has large benefits,” he says. “Because DNB has expertise of the economic and financial markets, there is loads of synergy between DNB and the old watchdog the PVK. It will stimulate the development of the pensions sector as a whole.”
Sleijpen agrees that the interference of DNB with the pension funds has increased. “But this isn’t necessity a bad thing. To DNB a professional management of risks is very important. Within this context it’s justified that pension funds need to offer more clarity on this.”
According to ABP’s financial policy director, the nFTK is by and large an improvement. “Nevertheless we still aren’t happy with the one-year recovery period. It’s just not realistic. Although DNB is an important adviser to the government, it doesn’t have the final say on the legislation. That’s of course the prerogative of the politicians.”
Earlier last year, ABP’s financial director Dick Sluijmers reproached DNB focusing on the short-term. “If we dive under a funding ratio of 100%, contributions will have to rise from 20-60%. Even if the mandatory recovery period is extended to five years, the contributions still need to increase to 28%,” he warned. “This won’t work, and it will lead to social unrest. Strangely this aspect has been totally absent during all political discussions. The one-year recovery period is a very blunt instrument. I hope DNB will use it very sensibly.”
Sluijmers also criticised the present longevity risk of the FTK, which prescribes a financial reservation until 2050. “This will cost ABP three percent of its coverage ratio, or between €4bn and €5bn, and €15bn for the market as a whole,” he stated.
Healthcare fund PGGM declined to give its opinion on the issue. “It’s difficult or us at the very moment. Any answers would be considered in the context of our present cooperation with DNB on our recovery plan,” spokesman Cor Brockhoven explained.