Nordic roundup: Finnish solvency, PKA, F&P, PensionDanmark, Hermes

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Solvency levels at Finland’s employee pension insurance companies strengthened between July and September 2014, but investment risks also increased in the period, according to the Finnish financial supervisory authority (FIN-FSA).

In its latest quarterly release of data on the capital position of the Finnish banking and insurance sector, the regulator said the solvency ratio of the country’s employee pension insurers rose to 31.1% at the end of September from 30.5% at the end of June.

But while it said that the average risk-bearing capacity of employee pension institutions could be considered strong, the risk level had continued on a slight upward trend, as the share of hedge funds and shares of the investments increased.

Anneli Tuominen, director general at FIN-FSA, said: “In the insurance sector, the main vulnerabilities are related to rapid adverse developments on stock and bond markets combined with the very low level of interest rates.”

Separately, the Ministry of Social Affairs and Health said new Finnish solvency rules for pension institutions had now been put before Parliament, and included the stipulation that providers would have to identify risks linked to each investment separately when calculating their solvency limit.

Provisions concerning the coverage of technical provisions would be abolished, the ministry said, because they would be superfluous under the new system.

The new rules will apply to employee pension insurance companies, pension funds and the Seafarers’ Pension Fund and partially to the Farmers’ Social Insurance Institution.

In other news, Danish pensions administrator PKA said the move to merge the pension funds it runs into just three had reduced costs by 15% in two years.

It said its 265,000-strong membership would each pay on average DKK450 (€47.5) in 2015 in administration costs, down DKK85 since 2013 – corresponding to a fall of 15%.

PKA said mergers and efficiency were the key reasons for the fall in costs.

Peter Damgaard Jensen, managing director at PKA, said: “In 2014, we merged four pension funds into two, so there are now three pension funds within PKA.”

Just over three years ago, he added, there had been eight pension funds within PKA.

Meanwhile, Danish pensions and insurance industry association Forsikring & Pension (F&P) said an official indicator pension funds use to calculate expected future pensions was being revised down in the short-term because of very low interest rates.

Long-term expectations, however, remained unchanged, it said.

The indicator – known as the social assumptions (Samfundsforudsætningerne) – is agreed by F&P and the Bankers’ Association (Finansrådet), as part of the Danish FSA’s (Finanstilsynet) guidance on pension projections.

Due to extraordinarily low interest rates, F&P said the indicator was now being divided into two parts – a short-term portion (2015-18) and a long-term portion (2019 onwards).

“In the short term, interest rate and yield assumptions are lower than previously, while the conditions are maintained in the long term,” the association said.

Meanwhile, labour-market pension fund PensionDanmark has appointed Hermes EOS to help implement its responsible investment policies and continue with its active ownership approach.

It said Hermes EOS would provide its “full spectrum of stewardship services” on the pension fund’s foreign-listed equity portfolio of around €6.5bn, as well as help the fund manage risks and add long-term value to its investments.

Jens-Christian Stougaard, director at PensionDanmark, said: “Alongside our obligation to pursue high risk-adjusted investment returns, we also have a fiduciary duty to tackle social, ethical and environmental issues.”

Hermes EOS said PensionDanmark was the fourth Nordic client the company had taken on, after Unipension, PKA and Industriens Pension.

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