The Central Exposed to Risk as a Hedging Strategy: A Case Study of a Kenyan Pension Scheme

Abstract

This study aims at estimating the CER^[1] of the members of the pension scheme under study, and establishing how it can be used to determine which mode of exit is more prevalent in the scheme, by analyzing their probabilities of occurrence at exact ages, of the members of the scheme. This shall assist the office manage risks that could be caused by such unprecedented exits and increase their returns. While the vast majority of companies have used CER in determining their vulnerability to running at a loss, this practice is still a challenge to many pension institutions in Kenya. Members of the pension scheme withdrew from the plan due to various reasons including death, retirement, termination/dismissal and resignation. The findings were presented in form of tables, charts and narratives. It is expected that these findings shall assist the pension’s office to manage risks due to exits and increase returns from the member’s contributions.

Keywords: Central Exposed to Risk, Force of Decrement, Poisson Model, Defined Contribution, Defined Benefit

[1] Central Exposed to Risk