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A Traffic Light Approach to Solvency Measurement of Swiss Occupational Pension Funds
Journal
Geneva Papers on Risk and Insurance - Issues and Practice
ISSN
1018-5895
ISSN-Digital
1468-0440
Type
journal article
Date Issued
2011-04-01
Author(s)
Abstract
In this paper, we combine a stochastic pension fund model with a traffic light approach to solvency measurement of occupational pension funds in Switzerland. Assuming normally distributed asset returns, a closed-form solution can be derived. Despite its simplicity, we believe the model comprises the essential risk sources needed in supervisory practice. Owing to its ease of calibration, it is well suited for a regulatory application in the fragmented Swiss market, keeping costs of solvency testing at a minimum. We calibrate and implement the model for a small sample of ten Swiss pension funds in order to illustrate its application and the derivation of traffic light signals. In addition, a sensitivity analysis is conducted to identify important drivers of the shortfall probabilities for the traffic light conditions. Although our analysis concentrates solely on Switzerland, the approach could also be applied to similar pension systems.
Language
English
Keywords
Occupational Pension Funds
Solvency Regulation
Traffic Light Approach
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Palgrave Macmillan Ltd.
Publisher place
Hampshire UK
Volume
36
Number
2
Start page
254
End page
282
Pages
29
Subject(s)
Division(s)
Eprints ID
60336