Wednesday, July 23, 2008

Swiss management of longevity

Influential Swiss newspaper NZZ has a good article (in German) about how Swiss Pensionskassen manage their longevity risks, i.e. not very much. The article claims that due to the usage of backward looking mortality tables, the longevity of members is systematically underestimated in a world of continuously rising longevity. Unfortunately the article does not take into consideration the experience in more advanced countries such as the UK. This is a valid issue which receives too little attention because of a rigid regulatory environment in Switzerland where many important parameters are politically determined with little consideration to factual developments.

Tuesday, July 15, 2008

A Plunge Protection Team?

While certainly no friend of conspiracy theories, I feel distinctly uncomfortable reading this well documented piece by a reputable source about the US government's alleged involvement in undercover equity market manipulation, a.k.a market stabilisation, in the name of national security (via naked capitalism). 

Monday, July 14, 2008

The fair value mindset

I like what the Chief Accountant of Xerox is reported to have said at the recent SEC round table on fair value reporting - but probably not in the way he would like me to. In essence, he says that fair valuing financial assets/liabilities is ok, whereas for operational items of non-financial firms it is not as it introduces volatility beyond the firm's control - they are used to mixed attribute accounting. And "managers will have to train themselves to think like market participants rather than operations experts". 

There is a lot to discuss there - but I'll try and make it short. Even operations experts should eventually think like market participants because economically, they need to take into account opportunity costs of their operational decisions, not least because their successor (average tenure, anyone?) or their boss might think like market participants ... Externally induced volatility is not a problem if it is real (and not an accounting artefact introduced by mixed attribute accounting), because it can be filtered, and users build confidence when they see it. Operational performance still remains visible. They like mixed attribute accounts? How dare they perform even the most basic arithmetic operations on numbers that do not have the same measurement attribute? Because it has been done for a long time and they are used to doing it does not make it any more sensible. So yes, I am in favour of full fair value, because financial reporting is made for users, not for managers. But I agree, there are some transition issues.

Tuesday, July 01, 2008

CEIOPS State of Pensions Report

CEIOPS' Report on financial conditions and financial stability in the European Insurance and Occupational pension fund sectors has a good section (starting p. 22) about recent developments in the European pension funds market, giving insights into last year's changes in a number of countries and a statistical overview, based on Eurostat.