# **Table of Contents**

|Pref|ace................................................................................................................................. 1|
|---|---|
|I.|Introduction................................................................................................................. 2|
|II.|The Danish Pension System........................................................................................ 2|
|1.|<br>Description of the System....................................................................................... 2|
|2.<br>|<br>Risk Sharing............................................................................................................ 8<br>|
|III.|Motivations for a Risk-Based Approach..................................................................... 9|
|1.|<br>Insolvency and Rescue Operations in the 1990s..................................................... 9|
|2.|<br>Growing Concerns about Future Solvency of Pension Institutions........................ 9|
|IV.|Adaptation of Regulatory Framework ...................................................................... 10|
|1.|<br>The Danish Financial Supervisory Authority (DFSA) ......................................... 10|
|2.|<br>Licensing and Authorization Criteria.................................................................... 12|
|3.|<br>Governance Rules and Internal Controls.............................................................. 13|
|4.|<br>Actuarial and Auditing Rules................................................................................ 14|
|5.|<br>Capital Rules......................................................................................................... 14|
|6.|<br>Technical Provisions and Valuation Rules ........................................................... 14|
|7.|<br>Investment Regulations......................................................................................... 15|
|8.|<br>Distribution Rules................................................................................................. 15|
|9.|<br>Disclosure Rules ................................................................................................... 16|
|10|.<br>Off-Site Analysis and On-Site Inspections....................................................... 16|
|11|.<br>Enforcement...................................................................................................... 18|
|V.|Implementation of Risk-Based Supervision ............................................................. 19|
|1.|<br>Relaxation of Investment Limits........................................................................... 19|
|2.|<br>Gradual Adoption of Fair Value Accounting Rules for Assets ............................ 19|
|3.|<br>Adoption of Fair Value Accounting Rules for Liabilities .................................... 19|
|4.|<br>Decomposition of Technical Provisions............................................................... 20|
|5.|<br>Adoption of Zero-Coupon Yield Curve................................................................ 21|
|VI.|The Traffic Light System.......................................................................................... 21|
|1.|<br>Asset Risks............................................................................................................ 21|
|2.|<br>Equity and Real Estate Risks................................................................................ 22|
|3.|<br>Credit Risk ............................................................................................................ 23|
|4.|<br>Counterpart Risks on Derivatives......................................................................... 23|
|5.|<br>Risks in Subsidiary Companies ............................................................................ 24|
|6.|<br>Taxation (Tax Assets)........................................................................................... 24|
|7.|<br>Currency Risks...................................................................................................... 24|
|8.|<br>Liability Risks (Insurance Provisions).................................................................. 24|
|9.|<br> <br>Basic Information and First Summary.................................................................. 25|
|10|<br>.<br>Concluding Report............................................................................................ 25|
|11|<br>.<br>Internal Risk Control and Market Discipline.................................................... 27|
|12|.<br>Changes in DFSA Procedures and Skills.......................................................... 28|
|13|.<br>Changes in the Behavior of Pension Institutions.............................................. 30|
|VII.|Preliminary Assessment of Risk-Based Supervision................................................ 34|
|1.|<br>Positive Achievements.......................................................................................... 34|
|2.|<br>Remaining Challenges .......................................................................................... 35|

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