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Risk-based Supervision of Pension Funds : Emerging Practices and ChallengesRisk-based supervision of pension funds
 grew out of a project that was jointly conducted by the
 World Bank and the International Organization of Pension
 Supervisors (IOPS). The project was initiated in response to
 the increasing interest in the development of innovative
 approaches to pension supervision from the member countries
 of both institutions. The volume provides an initial
 assessment of the development of risk-based supervision of
 pension funds in four countries that have been pioneering
 the development of risk-based supervision methods in various
 forms. The volume is comprised of a summary chapter and
 in-depth studies of the experience in four individual
 countries-Australia, Denmark, Mexico, and Netherlands. These
 four country studies were prepared by experts familiar with
 the systems in each of the countries. The studies have been
 edited by World Bank staff to ensure a consistent approach
 to the analysis of the various countries' systems.
 Models of risk-based supervision demonstrate the benefits of
 moving away from an approach based on strict compliance,
 specific rules, and quantitative controls toward an approach
 that puts more emphasis on the identification and management
 of relevant risks. A risk-based approach encourages
 supervised entities to place a greater focus on risk
 management in their daily operations, which promotes a
 stronger pension system and more effective outcomes for the
 members of the system. It is also expected that moving to a
 risk-based approach to supervision will enhance the ability
 of supervisors to focus resources on areas of highest risk,
 which will, over time, result in a more efficient use of
 supervisory resources.
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Risk-Based Supervision of Pension Institutions in DenmarkThis paper examines the move towards
 risk-based supervision of pension institutions in Denmark.
 Although Denmark has not adopted a comprehensive model to
 assess risk it has developed a number of building blocks
 which it uses for risk-based assessment. The motivations
 for improving risk assessment include a desire to identify
 emerging problems, and concerns about the solvency of
 pension institutions. In Denmark there is extensive use of
 guaranteed minimum returns in both the accumulation and
 payout phases which create substantial obligations on
 pension institutions, and focus attention on the integrity
 and solvency of the institutions which provide them. In
 conjunction with freeing up investment restrictions and
 moving towards market valuation of assets, the supervisor
 has introduced a 'traffic light' stress test model
 which calculates the effect of several market scenarios -
 the red test which is the more plausible and the yellow test
 which is possible but less likely. In addition to the use of
 the traffic light system, there has been a growing emphasis
 on the adequacy of internal risk control systems and greater
 reliance on market discipline. Pension institutions have
 sought to reduce their exposure to market volatility by
 better matching of assets and liabilities. There is a much
 better understanding of the risks inherent in the pension
 institutions' portfolios, and there has been a
 substantial increase in the use of hedging instruments.
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Czech Republic : Pilot Assessment of Governance of the Insurance SectorThis assessment of the governance of the
 Czech insurance sector has three objectives: (1) develop a
 set of best practice benchmarks for assessing the governance
 of insurance sectors in the Europe and Central Asia Region
 and elsewhere, (2) conduct a trial assessment of the Czech
 insurance governance framework against these benchmarks, and
 (3) provide recommendations on ways of further improving the
 corporate governance of the Czech insurance sector. The
 benchmarks and the assessment are found in Annex I and a
 list of recommendations is presented in Annex II. As this is
 a pilot assessment, the final report should be seen as no
 more than a work-in-progress. Nevertheless, it is expected
 that it will play a useful role in contributing to
 guidelines for strong corporate governance of insurers in
 both developed and emerging markets. It could also lay the
 basis for further governance-based reforms of the Czech
 insurance sector and provide a baseline assessment for
 measurement of the reforms.