Change in the surplus until 2024

Median surplus

Average of the 1% worst cases

Path 2

Path 1

99th centile

25th centile 75th centile

Path 4

Path 3










2016 2017 2018 2019 2020 2021 2022 2023 2024

The FRR has a surplus equal to the difference between its assets and the present value of its liabilities. The amount of hedging assets may then be slightly lower than that of liabilities, without jeopardising the Fund s ability to honour its commitments (in 2016 the proportion of lia- bilities not covered by hedging assets was very modest, at 5% to 15% of the liabilities). This enables the Fund to invest more in assets with higher upside potential (equities, high yield bonds and emerging countries), mainly as a result of current interest rate levels. A series of risk metrics is applied to check that the FRR is in

a position to meet all its financial obligations to

CADES even in a very adverse scenario.

The portfolio s overall risk is assessed on both a

short-term and long-term basis. Over the long

term, a wide range of possible outcomes for pro-

jecting the surplus have been simulated for the

period until 2024 (see graph), allowing us to esti-

mate that at any given time the surplus will aver-

age 1% in the worst-case scenarios. This must

be positive at all times, and should even allow us

to maintain a safety margin to reflect the model-

ling risk inherent in this type of exercise.

Over the short term, we define a disaster sce- nario, based on the worst scenarios for the last 20 years for each FRR risk factor. In each case, the FRR surplus remains greater than 0.

Source of risk Worst-ever historical scenario

Developed country equities -53% Emerging market equities -57% Developed country equities (hedged by introducing systematic option-based hedging strategies) -30%

High yield corporate bonds -35% Emerging market bonds -30% Euro-denominated investment grade corporate bond credit (relative performance versus matching) -17% Dollar-denominated investment grade corporate bond credit (relative performance versus matching) -20% Liabilities 7%