DIP’s main objective is to ensure that the pension commitments towards the members can be met both in the short and long term.
The board determines the risk limits while the daily management supervises risks and ensures that the limits are complied with. The market value of the pension commitments and assets is calculated continually.
The requirement to the equity (the individual solvency need) is also calculated continually based on guidelines defined by the Danish Financial Supervisory Authority. In brief, the individual solvency need is a statement of the size of the capital that must be available relative to the risks assumed.
DIP is influenced by a number of risks that affect the individual solvency need, and the board has analyzed the different risks and their possible impact on DIP’s financial position.
Overall, market risks consist of equity risk, interest rate risk, credit risk, inflation risk, concentration risk, currency risk and liquidity risk. DIP seeks to reduce the total investment risk by spreading the investments.
Counterparty risk is the risk of losses if one of DIP’s counterparties goes bankrupt. Counterparty risks include deposits as well as non-realized profits from financial contracts like forward contracts.
To ensure non-realized profits on financial contracts, DIP requires collateral from the counterparties which reduces potential losses in relation to financial contracts.
The insurance-related risks include trends in the mortality and disability rates etc. Increased longevity results in increased duration of pension payments, and consequently it is the most significant insurance-related risk.
The operational risks relates to losses caused by i.e. errors in computer systems or procedures as well as fraud. DIP limits the operational risks by having a distinct functional separation as well as in-house controls which are up-dated regularly. Co-operation with external managers and administrators also reduces the operational risks.