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Swedish pension firms underestimate life expectancy

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SWEDEN - An annual review of the technical provisions of 17 pension and life insurers by pensions regulator Finansinspektionen (FI) has revealed they suffered a deficit of more than SEK 17bn (€1.55bn) at their peak, although SEK15bn of this had been recouped by the end of 2008.

The report revealed the most common reason for the shortfall was an underestimation of future life expectancy rates compared with projections, as seen as 12 of the 17 companies, while four of the firms had underestimated future operating costs.

Figures from the FI's report showed the total deficit in the technical provisions of the firms for the years 2007 and 2008 was SEK17.2bn, or a shortfall of 3%, although it highlighted by the end of last year this had been reduced by SEK15bn.

FI emphasised the shortfall had not directly affected the level of pensions being paid to members and has not threatened the solvency positions of the companies, but it confirmed it had initiated dialogues with the companies reporting deficits to encourage them to change the estimated assumptions and increase funding levels.

The FI admitted, however, it could take time for companies to change their practices as it depends on the complexity of the calculation and the relevant technical systems.

The report into the funding levels of the life and pension companies follows confirmation from the FI in March that it intends to incorporate its existing "traffic light" model into a new insurance barometer. (See earlier IPE article: FI to roll traffic light model into barometer)

Latest figures from the traffic light model in February revealed that three pension funds had reported a "red light" following a decline in the levels of "buffer capital" in the schemes, equivalent to 2% of the total pensions market. (See earlier IPE article: Three Swedish pension funds report 'red light')

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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