IPF årsrapport 2018 (eng) - Flipbook - Side 49
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47
Notes (cont.)
Note
25
Risk management (cont.)
Market risk
Market risk includes risks of losses on investment
assets, among others things arising from losses on
shares, interest rates, currency and properties.
Furthermore, the risk of losses as a consequence of
credit and counterparty risks, as well as liquidity
risks, are included.
Operational and strategic risk
Operational risk comprises the risk of losses
attributable to internal errors in IT systems, incorrect
procedures, inadequate internal controls, fraud, etc.
The company is exposed to market risk on its own
funds as well as the provisions in average rate and
sickness and accident insurance. The most important
financial risks for members who still have a pension
scheme with average interest rate are linked to the
interaction between investment assets and current
insurance obligations.
Strategic risk includes reputation risks and other
risks related to external events and factors.
The risk relates to whether the return on investment
assets is sufficient to cover liabilities on insurance
contracts. The most important risk here is changes in
interest rates. The interest-rate risk on liabilities is
eliminated by hedging with interest-rate derivatives.
For members in market rate who bear the market risk
themselves, this is managed through a lifecycle
product for which the risk depends on the investment
horizon of each member, determined on the basis of
the age of the individual member.
The risk of losses from changes in exchange rates is
mitigated by using derivatives.
The counterparty risk is generally mitigated by
applying the delivery versus payment principle in
connection with securities trading and by demanding
collateralisation for positive fair values over a certain
level on the derivatives used.
Insurance risk
Insurance risk includes the risk of losses because of
negative changes in mortality rates, life expectancy,
loss of ability to work as well as critical illness.
These risks are mitigated with regular monitoring of
errors and by establishing suitable controls.
The most important operational risks are linked to
the company’s use of IT.
Solvency capital requirement
As an insurance company, Industriens Pension
must regularly calculate a solvency capital
requirement. The scope of the capital requirement
depends on the current risk profile.
The Board of Directors overall approves the
methods used to calculate the solvency capital
requirement. The capital requirement is calculated
in accordance with the standard model, parameters
and buffers laid down by the Danish Financial
Supervisory Authority in the Executive Order on
Calculation of the Solvency Capital Requirement.
The current solvency capital requirement at the end
of 2018 is stated in the table of key figures and
financial ratios on page 1 of the management's
review.
The amount of capital available to cover the capital
requirement was DKK 9,312 mill. at the same date.
See the report on solvency and the financial
situation for 2018 on the company website (in
Danish) for more details on risk and solvency.