Empirical Risk Analysis of Pension Insurance: The Case of Germany

Abstract

AbstractThe book reserve system is the most widespread method of financing occupational pension plans in Germany. The pension liabilities are mutually insured by the Pensions‐Sicherungs‐Verein VVaG (PSVaG) against bankruptcy. The PSVaG recently stated that the insurance system needed to be reformed. In the future, risk‐adjusted premiums as foreseen for the newly established Pension Protection Fund in the United Kingdom could become feasible. We perform a credit portfolio analysis to determine the risk profile of the PSVaG. The magnitude of a tail risk event suggests that under the current financing system it can only be smoothed out over decades. Under an expected loss pricing plan insurance premiums would vary greatly. In a marginal risk contribution approach the variation of the premiums would be less pronounced.