Financial Services Regulatory Authority Of Frankfurt Develops New Tool To Measure Risks Exposures For Insurance And Pension Fund Firms
Financial Services Regulatory Authority of Frankfurt is at present working on the development of a new tool called Supervisory Traffic Light Technique which is designed to measure the level of risks exposures of the member companies that offer services on life insurance as well as occupational pension funds.
- (1888PressRelease) April 14, 2011 - The new measuring risk tool is planned to assist in the supervisory role of the Financial Services Regulatory Authority of Frankfurt in its endeavor to attain early detention of excessive financial risks of the companies. The main objective of this new tool is for the member companies to beneficially acclimatize their investment and risk-taking based on their financial strength to guarantee potential revenues for the clients.
Just recently, Financial Services Regulatory Authority of Frankfurt has presented another draft of the Supervisory Traffic Light Technique. The new draft includes the entire structures of the tool and the initial estimation of the possible asset price modification that member companies must be able to cope with for diverse types of class assets such as stock shares and bonds.
Major Assumptions included in the new draft design of the Supervisory Technique tool include:
• The interest rate sensitivity of the accountability side can be coordinated by bonds and other interest rate instruments. On the other hand, interest rate risks for foreign interest rates will also be measured since most foreign interest rates are hard to move identically.
• Foreign bonds and other interest-rate instruments that are traded in foreign currencies can also harmonize with the interest-rate sensitivity of the accountability side.
• The new Supervisory Traffic Light Technique is expected to measure how the member-companies' financial defense is affected by the unexpected variation in the local and foreign interest rates, stock share prices, real-estate prices, exchange rates and credit risks.
• No precise exchange rate risk in offshore shares. The risk exposure risk in foreign shares is integrated in stock share risks but not integrated in the entire exchange rate exposure.
• The new tool also considers diversification between asset types. In the new draft of the Supervisory Traffic Light Technique, autonomy in asset prices modification is also given importance, excluding local and foreign interest rate risks. In addition, the effect of the various asset price modifications will not be linearly added; however, they will be summed up using square root formula.
• In the presentation of the next draft of the tool which is expected to be presented on the third quarter of the year, the real interest rates will be included.
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