The Holistic Balance Sheet as the New Framework for European Pension Supervision

49 Pages Posted: 11 Oct 2012

See all articles by Jurre Haan

Jurre Haan

APG

Karin Janssen

APG

Eduard H.M. Ponds

Algemene Pensioen Groep (APG); Tilburg University - Department of Economics; Netspar; Tilburg University - Center for Economic Research (CentER)

Date Written: October 1, 2012

Abstract

The European Commission (EC) plans to revise the IORP Directive in order to introduce a harmonized framework of quantitative requirements for European pension funds. The so-called 'holistic balance sheet approach' is advised by EIOPA, which enables regulators to compare various pension systems across Europe in one framework. A holistic balance sheet is an extension of the traditional balance sheet, as next to the usual assets and liabilities, conditional assets and liabilities are stated.

These conditional assets and liabilities are the economic value of the various policy instruments, which can be valued as embedded options with the help of derivative pricing techniques.

The impact of the holistic balance sheet approach is compared to a traditional balance sheet and alternative holistic balance sheet methods are put forward. The holistic balance sheet is intellectually tempting, however it could be further improved. This paper comes up with three concrete proposals in order to improve the proposed holistic balance sheet: an open fund framework instead of a closed one, a dynamic solvency measure instead of a static one, and specific supervision regarding the risk model to be used in the valuation of the holistic balance sheet.

Keywords: holistic balance sheet, European pension supervision, value-based ALM, embedded pension options

Suggested Citation

Haan, Jurre and Janssen, Karin and Ponds, Eduard H.M., The Holistic Balance Sheet as the New Framework for European Pension Supervision (October 1, 2012). Netspar Discussion Paper No. 10/2012-033, Available at SSRN: https://ssrn.com/abstract=2159683 or http://dx.doi.org/10.2139/ssrn.2159683

Jurre Haan

APG ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

Karin Janssen

APG ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

Eduard H.M. Ponds (Contact Author)

Algemene Pensioen Groep (APG) ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

Tilburg University - Department of Economics

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Center for Economic Research (CentER) ( email )

Tilburg

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