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As an independent specialist Ortec Finance offers the Risk Navigator service, a strategic risk management service for pension funds. The Risk Navigator.
Table of contents

In this area of research, we focus on the impact that capital structure and asset allocation has on economic capital and the risk-adjusted performance of financial services firms, including banks and insurers. Our research challenges the conventional wisdom that the capital backing annuity firms should be invested in low risk, bond type, asset-classes.

We also find gearing up Tier 1 capital with Tier 2 capital can be in the interests of banks but not of insurers.

Pension Plan Risks | Pension Funding & Risk Management | Mercer

Funded pension schemes seek to meet the cost of benefits by investing in a range of assets. However, assets must be chosen not simply on the basis of their expected return but also taking into account the extent to which they are appropriate for meeting particular liabilities. This means taking into account the certainty and liquidity of asset payments over the term relevant to the liabilities. Because pension schemes have a relatively low need for immediate liquidity, they can invest more in less liquid assets, taking advantage of any liquidity premium available. However, this means that new measures of solvency need to be developed such that short-term valuation approaches do not make these illiquid assets seem less attractive than they are.

Pensions Risk Management in 2017

There are also shorter-term investment issues that are of importance to pension schemes, such as the impact of quantitative easing, the level of credit spreads and the long-term attractiveness of various bond asset-classes. These are all highly relevant to investors managing defined benefit pension plans.

Given the global trend away from defined benefit employer-based pension plans, careful thought needs to be put into the design of defined contribution alternatives. Centre for Actuarial Science, Risk and Investment Research Economic capital and financial risk management Economic capital and financial risk management. In particular, financial services firms are now expected to self-assess and quantify the amount of capital they need to cover the risks they are running.

This means the service has a clear signal function. The Risk Navigator has a modular setup, so that it can be made to fit the specific needs of any pension fund.

Its findings are presented in an attractive, interactive format that is accessible on multiple devices including tablets. Managing investment portfolios is a complex process. There is a tendency to focus on the micro-level, whereas macro-level decisions usually have a greater impact on risk and return.

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  3. Pension Plan Risks | Pension Funding & Risk Management | Mercer.

It is important for pension funds to regularly evaluate the strategic risks their plan faces, driven by changes in financial position or market circumstances. To what degree are long and short term strategic objectives still feasible? Are risks still within the risk budget?

Pension Risk Management for Retirement Plans

Are the funding plans in place still aligned to recover the deficits? How did market circumstances develop over time, what does this mean for the risk and return outlook on the short and medium term, and how could the fund translate this in its dynamic investment policy? It covers the feedback loop of evaluation of the specific pension fund objectives and risk appetite, as formulated in the ALM phase.