Annual Report 2023 (eng) - Flipbook - Side 16
INDUSTRIENS PENSIONSFORSIKRING A/S ÅRSRAPPORT 2023
Risk and solvency
Risk management
The most important element of Industriens
Pension's risk management is to ensure that all
significant risks from the current business model
and activities are identified, quantified,
assessed, managed and reported.
The Board of Directors regularly deals with
different risk themes, and maintains an overview
of the risks to which Industriens Pension is
exposed. This and other input forms the basis for
regular risk assessment and management.
The risk assessment of individual risks takes into
account members' circumstances, as well as the
size of the capital base to cover current capital
requirements.
The majority of members have a market-rate
product for which each member bears the risk.
This product entails a key task in the risk
assessment to ensure that individual member's
savings are not subject to an inappropriate risk.
This was by introducing a lifecycle product for
which the risk depends on the age of a member,
and thus the investment horizon. Besides this,
when setting the pension to be paid out on
retirement, a smoothing mechanism is applied to
reduce the size of any fluctuations caused by
any negative investment returns or increases in
the members' remaining life expectancy.
For average interest-rate products, sickness and
accident insurance and group life, as well as the
company's capital base, the risk assessment
takes into account the impacts of individual risks
on the size of the solvency capital requirement
to be covered by capital.
Prudent person principle
Industriens Pension complies with the prudent
person principle by defining a number of
principles for risk-taking laid down in policies
issued by the Board of Directors. The Board of
Directors conducts an independent assessment
of members' risk.
The entire investment process centres on the
prudent person principle, from stipulation of the
strategic asset allocation to actual execution of
internally managed investments and selection of
external managers and funds. Procedures have
been established to ensure that investments are
only in assets associated with risks that the
pension company can identify, understand,
measure, monitor, manage, control and report
on.
This point is particularly important for unlisted
investments, for which models have been
developed to monitor the risks in the individual
funds, and to monitor relevant market
RISK AND SOLVENCY
information which may have significance for
valuation of these investments.
Regular monitoring of investment assets
includes monitoring compliance with principles
and guidelines laid down by the Board of
Directors. Calculations are made of how far
actual investments are from the strategic asset
allocation to determine whether the security,
quality, liquidity and accessibility of investment
assets deviate significantly from the profile
judged to be appropriate in policies for
investments.
The market risk of the individual member is
assessed on the basis of risk analyses in the
short and long terms, and on the basis of
selected risk scenarios. Given the long-term
investment horizon of members, the strategic
level of risk is determined on the basis of the
long-term risk analysis, assuming that the shortterm risk and fluctuations in the risk scenarios
are acceptable. Important elements in the
analyses include members' degree of cover as
pensioners, and the risk of reductions in
payments.
Sustainability risk
Industriens Pension has focus on sustainability
risk and assesses these in line with other risks
associated with investments.
Sustainability risks are environmental, social or
governance (ESG) incidents or circumstances
that, if they occur, can have an actual or potential
significant negative impact on the value of
investments. Sustainability risks are integrated
in investment decisions in several areas, but
data for sustainability risks is limited and is
generally only available in the climate area for
listed assets.
Industriens Pension's integration of climate risks
is based on a model that indicates the
percentage of the value of the companies
invested in that the company can risk losing
because of physical conditions or transition
costs. The model is used at three levels for listed
companies: The model is used on the total
portfolio at the annual portfolio optimisation to
adjust the expected returns on the various
classes of assets on the basis of how sensitive
to temperature rises they are assessed to be. In
the optimisation, assets with a high climate risk
tend to have a reduced weight.
Moreover, the model is used to measure
transition and physical climate risks at subportfolio level and at single-asset level to
determine whether the level of risk is acceptable
in relation to expected returns.
Solvency capital requirement and own
funds
The solvency capital requirement primarily
arises as a consequence of the obligations for
the capital base regarding the average interest
rate product, sickness and accident insurance
and group life, as well as from the investment
risk on the capital base's own assets. There are
common solvency regulations in the EU. The aim
of the regulations is to ensure effective risk
management and uniform calculation of
insurance
provisions,
solvency
capital
requirements and own funds for EU insurance
and pension companies.
Industriens Pension has decided to calculate the
solvency capital requirement according to the
Solvency II standard model. Insurance contracts
in Industriens Pension do not contain earnings
for own funds, and thus provisions do not
contain a profit margin.
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