Empirical risk analysis of pension insurance – the case of Germany

Wolfgang Gerke, Ferdinand Mager, Timo Reinschmidt and Christian Schmieder ()

No 2006,07, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank, Research Centre

Abstract: With this paper we seek to contribute to the literature on pension insurance systems. The financial literature tends to focus exclusively on the US pension insurance system. This is the first major empirical study to address the German occupational pension insurance (PSVaG) plan in Germany. The study is based on a Merton-type one-factor model, in which we determine the credit portfolio risk profile of the occupational pension insurance plan and compare two alternative pricing plans. We find that there is a low, yet non-negligible risk of very high losses that may threaten the existence of the occupational pension insurance plan (PSVaG). While relating risk premiums to firms' default probabilities would cause them to diverge widely, a marginal risk contribution method would produce less pronounced differences compared to the current, uniform pricing plan.

Keywords: Pension insurance; Risk-adjusted premiums; Credit portfolio risk (search for similar items in EconPapers)
JEL-codes: C15 G18 G22 G23 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-fin, nep-fmk, nep-ias and nep-rmg
Date: Written 2006
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