Pension management companies sector
The CNB has been conducting macro-stress tests of pension management companies (of pension funds until 2014) every year since 2007. It has gradually expanded and adjusted the test methodology as the sector, the regulatory rules and potential risks have changed. The results are published every year in the Financial Stability Report.
A decrease in the value of the assets of their transformed funds (representing 73% of the sector’s assets as of 31 December 2023) is the main risk to the financial stability of pension management companies in the Czech Republic. By law, pension management companies must ensure that the asset value of a transformed fund does not decline below the value of its liabilities. An adverse trend in the asset value may lead to a situation where the pension management company has to cover the difference from its funds. In the event of a sharp decrease in the asset value, the stability of the sector could be jeopardised.
The main factors affecting the value of assets in transformed funds’ portfolios include i) general and specific interest rate risk, ii) exchange rate risk, iii) equity risk, iv) real estate risk, and v) credit risk. The stress test therefore assesses their potential impacts in the Adverse Scenario.