PSVaGPensions-Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit (German body responsible for a pension indemnification fund)
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Unlike the PBGC or the newly established PPF in the United Kingdom, the PSVAG does not meet the payments from a central fund.
In case of a bankruptcy, the PSVaG purchases annuities from a consortium of private life insurance companies covering the present value of all pensions, which are already paid.
The PSVaG is financed by ex post insurance premiums, which cover the annual costs of the insurance plan and ensure the ongoing solvency.
Similar to the PBGC and the PPF, the PSVaG seeks to limit the risk of moral hazard by several measures.
Throughout its history, the PSVaG has always maintained a low loss profile.
Pension funds are also covered by the PSVaG, but the premiums are reduced to one-fifth of those of (unfunded) pension provisions due to the vastly different exposure of the PSVaG.
In May 2005, the management board of the PSVaG declared that the financing system needed to be changed.
What sets the PSVaG apart from other financial institutions is that its insurance portfolio can be observed "from the outside." The pension liabilities appear as pension provisions on the liability side of insured corporations' balance sheets.
In order to analyze the PSVaG's risk profile, we use the comprehensive balance sheet database of Deutsche Bundesbank.
By means of the final data set, we can directly observe about 70 percent of all book reserves insured by the PSVaG. (13)
In this section, we will outline the underlying methodology for measuring the credit portfolio risk of the PSVaG and the risk contribution by each firm.
We regard the PSVaG's members as counterparties, which may default.