NETHERLANDS - Pension supervisor De Nederlandsche Bank (DNB) has contradicted social affairs minister Piet Hein Donner about the potential effect of credit risk posed by insurers to reinsured pension funds.

The minister said last week that reinsurance offered pension funds added value, while DNB today warned that the risks posed should not be forgotten.

Joanne Kellerman, pensions director at DNB, said in a letter to the affected pension funds: "Our worry is that the credit risk is present, even if legislation doesn't say schemes must take it into account."

A DNB spokesman elaborated: "It is our responsibility to point at the risks, even if legislation doesn't explicitly do so.

"We want to make our worries public about not including mandatory financial buffers for reinsured pension funds."

Recently, Donner said he would ease the rules of the financial assessment framework (FTK) by exempting reinsured schemes from having a financial buffer for the credit risk at their insurer.

However, he also made clear pension funds must contine to keep the required minimum financial reserves of 1%, equating to a coverage ratio of at least 101%.

Under the rules of the Pension Act, reinsured pension funds face a financial shortfall, as the financial crisis has hurt the creditworthiness of insurers.

At present, this ought to trigger recovery measures, despite the fact insurers can fully comply with their obligations, according to Donner.

Earlier this year, the minister granted reinsured pension funds a temporary exemption from submitting a recovery plan.

As long as legislation is not amended, the current postponement of recovery plans will remain, the DNB director said.

However, a spokesman for minister Donner denied the DNB and the department for social affairs have differing views on the issue.

"The minister acknowledges the existence of credit risk, but in his opinion, an extra buffer is not necessary," the spokesman said.

He added: "Also, given the requirements for insurers of the Financial Supervision Act (WFT), Donner wants to avoid an accumulation of requirements."

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