Denmark’s financial supervisory authority (FSA) has released its new draft regulations on life insurance companies’ health and accident insurance businesses, which effectively outlaw pension firms from making long-term losses on those operations.

The watchdog said it had been focusing for a long time on the fact that several life insurers have been giving large discounts on health and accident insurance – the product that is used to compete for company pension schemes.

It billed the new regulations – which are now out for consultation until 1 September – as protecting the long-term sustainability of life insurance companies’ business models.

Carsten Brogaard, deputy director of the Danish FSA’s supervision of pensions and insurance companies, said: “With the executive order, the Danish Financial Supervisory Authority is proposing that the companies make internal separate statements for the life insurance company and the health and accident insurance company.”

Denmark’s biggest life insurance companies are also the country’s biggest pension providers, since most Danish pension firms are incorporated as life insurers.

The FSA has said that the new rules – in the form of a revised executive order – were drafted in response to the Danish Competition Authority’s work into the pensions sector over the last few years.

In its December 2019 report and subsequently, the competition watchdog had highlighted loss-making non-life insurance activities as distorting competition in the pension sector.

The FSA said yesterday that it needed to amend the executive order on life insurance companies’ health and accident insurance (SUL) because of the systematic deficits the life firms were running in this non-life business.

But it was also because there had to be a more directive-oriented implementation of the Solvency II directive’s requirements for internal separate statements for different business areas, it said.

“Such requirements do not appear explicitly in Danish legislation today,” the FSA said.

In the consultation document, the authority said: “The main consequences of the proposal are that, as far as the wording ’separate management’ is concerned, a requirement is interpreted that both business areas must have sustainable business models, including both business areas being able to last by themselves.”

“In this connection, systematic deficits in a historical period or expected systematic deficits in the strategic planning period may mean that a business model is not considered sustainable and that the requirement for separate management is thus not considered fulfilled,” the regulator said.

On top of this, it said, the proposal entails internal separate statements being kept and reported annually to the Danish FSA.

Danish pension and insurance lobby group Insurance and Pension Denmark (IPD) – which represents non-life insurers as well as the pension providers – said it would study the draft executive order and submit a joint consultation response on behalf of the industry.

Jan Hansen, deputy director of IPD, said: “It is in everyone’s interest that we have a regulation that ensures good and equal competition between the companies.”

At the same time, he said, IPD also wanted the executive order to create some good and sustainable business models in the area of health and accident insurance.

IPD said it would submit its consultation response to the regulations, developed in conjunction with its members, no later than 1 September.

Looking for IPE’s latest magazine? Read the digital edition here.