UK - Industry leaders in the UK have welcomed the Association of British Insurers' (ABI) report on insolvency risks and the role of sponsors' covenant as a "useful first step" but cautioned there is still a long way to go for it to be entirely useful.
Speaking to the ABI in London, Partha Dasgupta, chief executive of the Pension Protection Fund (PPF), welcomed the report and said anything that prompted debate was good.
However, he said the modelling techniques used raised questions and were incomplete, as it was an obvious compromise.
"We must be careful how we handle the quantitative output [of this model] - that we model the right things, rather than modelling things right. The report has taken a simplistic approach to make the model tractable, but we need to make sure the right trade-off is there," he said
One of the report's controversial aspects was the assumption funds would seek a buyout deal when they hit a funding ratio of 125%.
"Clearly that's a structural shift we're seeing in the marketplace." Dasgupta said. "What will the universe look like in 10-15 years time? Will we even care about the sponsors' risk of default?"
Con Keating, an analyst with pension fund insurance vehicle BrightonRock Insurance, criticised the use of the 'typical' model for the calculations as an over simplification, saying different industries would produce distinctly different results and it was "of limited use".
He argued factors such as a company's dividend policy should have been included in the model and underlined the importance of the sponsor's role.
"The paramount risk with corporate pensions is precisely sponsor insolvency," he said. There's a lot to be looked at here and a lot to be done. As a first step its fantastic, but there's a long way to go."
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