Order on Reporting and Sensitivity Analyses by Corporate Pension Funds

Order on Reporting and Sensitivity Analyses by Corporate Pension Funds 1)

Pursuant to Section 49, paragraph 5, Section 102, paragraph 4, and Section 117, paragraph 9, of the Act on Corporate Pension Funds, cf. Act No. 355 of 2 April 2020, it is hereby ordered:

Chapter 1
Scope of Application

Section 1. This Order applies to corporate pension funds covered by Section 2, paragraph 1, of the Act on Corporate Pension Funds.

Chapter 2
Regular Supervisory Reporting

Section 2. Corporate pension funds shall continuously report the following information to the Danish Financial Supervisory Authority (Finanstilsynet):

1) Solvency conditions, including in the form of the calculated basic capital, cf. Section 53 of the Act on Corporate Pension Funds, and the calculated capital requirement, cf. Chapter 9 of the Act on Corporate Pension Funds.
2) The calculated pension provisions, cf. Section 51 of the Act on Corporate Pension Funds.
3) The results of the sensitivity analyses, cf. Sections 3-5.
4) Assessment of own risk, cf. Section 7 of the Order on Management and Control of Corporate Pension Funds.
5) Information on cross-border activities, cf. Section 90, paragraph 2, of the Act on Corporate Pension Funds.
6) Registered assets in accordance with the Order on Registration of Assets in Insurance Companies and Corporate Pension Funds.
7) EIOPA reports, cf. paragraph 3.

Paragraph 2. Corporate pension funds shall carry out the regular supervisory reports, cf. paragraph 1, items 1-3, and the regular accounting reports to the Danish Financial Supervisory Authority in accordance with forms and guidelines thereto prepared by the Danish Financial Supervisory Authority.

Paragraph 3. Corporate pension funds shall annually and quarterly submit reports to the Danish Financial Supervisory Authority in accordance with forms and guidelines thereto prepared by the European Insurance and Occupational Pensions Authority (EIOPA).

Chapter 3
Sensitivity Analyses

Method

Section 3. The corporate pension fund shall conduct sensitivity analyses for both a medium (red) and a hard (yellow) scenario for interest rate risk, equity price risk, property risk, commodity risk, country spread risk, and currency exchange rate risk with a view to determining effects on the basic capital.

Paragraph 2. The corporate pension fund shall, to the greatest possible extent, calculate the sensitivity analyses on the basis of each of the underlying assets in collective investment undertakings and other investments packaged as funds (look-through principle).

Paragraph 3. The effect from risk-mitigating measures shall be included in the sensitivity analysis.

Paragraph 4. The corporate pension fund shall apply the risk scenarios in paragraph 1 to solvency conditions calculated on the last day of each quarter.

Risk Categories

Section 4. The corporate pension fund shall conduct the sensitivity analyses mentioned in Section 3 for each of the following risk categories:

1) Interest rate risk.
2) Equity price risk.
3) Property risk.
4) Commodity risk.
5) Country spread risk.
6) Currency exchange rate risk.

Paragraph 2. The corporate pension fund shall, when conducting the sensitivity analyses, use the following stress tests:

1) For interest rate risks, an interest rate change of 0.7 percent in the red scenario and 1 percent in the yellow scenario is calculated. The stress is expressed as a positive number of percentage points in an interest rate rise scenario and as a negative number of percentage points in an interest rate fall scenario. The effect is measured on interest-bearing claims and pension provisions.
2) For equity risks, the stress consists of a fall in equity prices of 12 percent in the red scenario and 30 percent in the yellow scenario.
3) For property risks, the stress consists of a fall in property values of 8 percent in the red scenario and 12 percent in the yellow scenario.
4) For commodity risks, the stress consists of a fall in commodity prices of 18 percent in the red scenario and 45 percent in the yellow scenario.
5) For country spread risks, the stress consists of a fall in percentage points on provisions and bonds of 0.144 percent in the red scenario and 0.212 percent in the yellow scenario. Country spread risks shall be calculated as the parallel shift in the relevant risk-free yield curves measured in percentage points up or down.
6) For currency exchange rate risks, the stress consists of Value-at-Risk 99 percent and 99.5 percent on 8 of the Danish Financial Supervisory Authority's selected currencies with a given covariance matrix in the red and yellow scenarios, while other currencies are defined as 8 percent of the net holding in the red scenario and 12 percent of the net holding in the yellow scenario. Currency exchange rate risks shall only be calculated if the net currency holding exceeds 10 percent of the total balance sheet.
7) For financial instruments related to interest rates, the stress consists of the change in market value caused by the interest rate changes assumed in paragraph 2, item 1.
8) For financial instruments related to equities, the stress consists of the change in market value resulting from the equity price fall assumed in paragraph 2, item 2.
9) For financial instruments related to commodities, the stress consists of the change in market value resulting from the fall in commodity index bonds assumed in paragraph 2, item 4.

Calculation Method

Section 5. The corporate pension fund shall calculate the total effect of the stress tests on the basic capital mentioned in Section 4.

Paragraph 2. The corporate pension fund shall calculate the effects on the basic capital for both the red and the yellow risk scenarios, cf. Section 4.

Paragraph 3. The corporate pension fund shall calculate the effect at both an interest rate rise and an interest rate fall in both the yellow and red risk scenarios. The interest rate scenario that causes the largest net loss on assets and liabilities of an interest rate rise or fall constitutes the worst interest rate scenario under the traffic light calculation.

Paragraph 4. The corporate pension fund's overcoverage in the traffic light calculation for both the yellow and red risk scenarios is calculated by subtracting from the basic capital after inclusion of the risk scenario at the worst interest rate scenario the difference between the solvency requirement after inclusion of the worst interest rate scenario and an amount corresponding to three percent of pension provisions after inclusion of the worst interest rate scenario.

Paragraph 5. If the overcoverage is negative in the red risk scenario, the company is in the red light. If the company has positive overcoverage in the red risk scenario and negative in the yellow risk scenario, it is in the yellow light. If overcoverage is positive in both risk scenarios, the company is in the green light.

Paragraph 6. A corporate pension fund's risk-adjusted solvency ratio is calculated by dividing the basic capital calculated before the risk scenario by the sum of the difference between the solvency requirement with inclusion of the worst interest rate scenario and an amount corresponding to three percent of pension provisions with inclusion of the worst interest rate scenario and the difference between the basic capital before inclusion of a risk scenario and the basic capital with inclusion of the worst interest rate scenario.

Chapter 4
Deadlines

Section 6. Information on cross-border activities, cf. Section 2, paragraph 1, item 5, shall be reported to the Danish Financial Supervisory Authority no later than two weeks after the financial year.

Paragraph 2. The results of the sensitivity analyses, cf. Chapter 3, calculated at the end of the quarter, shall be reported to the Danish Financial Supervisory Authority no later than four weeks after the end of each quarter.

Paragraph 3. Information on solvency conditions, cf. Section 2, paragraph 1, item 1, information on and calculation of pension provisions, cf. Section 2, paragraph 1, item 2, and the regular accounting reports, cf. Section 2, paragraph 2, calculated at the end of the year, shall be reported to the Danish Financial Supervisory Authority no later than 14 weeks after the financial year.

Paragraph 4. The corporate pension fund's assessment of own risk, cf. Section 2, paragraph 1, item 4, shall be reported to the Danish Financial Supervisory Authority at least every third year and after any significant change in the corporate pension fund's risk profile. The assessment of own risk shall be reported no later than two weeks after the board's approval, cf. Section 7 of the Order on Management and Control of Corporate Pension Funds.

Paragraph 5. The corporate pension fund's quarterly EIOPA reports, cf. Section 2, paragraph 1, item 7, cf. paragraph 3, shall be reported to the Danish Financial Supervisory Authority within the following deadlines:

1) Seven weeks and ten working days after each quarter in 2020.
2) Six weeks and ten working days after each quarter in 2021.
3) Five weeks and ten working days after each quarter in 2022 and for all subsequent financial years.

Paragraph 6. The corporate pension fund's annual reports, cf. Section 2, paragraph 1, item 7, cf. paragraph 3, shall be reported to the Danish Financial Supervisory Authority within the following deadlines:

1) 18 weeks and 20 working days after the financial year 2020.
2) 16 weeks and 20 working days after the financial year 2021.
3) 14 weeks and 20 working days after the financial year 2022.
4) 12 weeks and 20 working days after the financial year 2023.
5) 10 weeks and 20 working days after the financial year 2024 and for all subsequent financial years.

Chapter 5
Penal Provisions

Section 7. Whoever contravenes Sections 2 or 6 shall be liable to a fine.

Paragraph 2. Companies and other legal persons may be subject to criminal liability in accordance with the rules in Chapter 5 of the Danish Criminal Code.

1) The Order contains provisions implementing parts of Directive 2016/2341/EU of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs), Official Journal of the European Union 2016, L 354, page 37.

Chapter 6
Entry into Force

Section 8. This Order enters into force on 1 July 2020.

The Danish Financial Supervisory Authority, 14 May 2020

JESPER BERG
/ Line Bergmann