The Danish financial watchdog is working on a proposal for draft legislation aimed at tackling the long-flagged competition problem of commercial pension firms sweetening their bids for corporate pension contracts by bundling offers with cheap, loss-making non-life insurance.

The Danish Financial Supervisory Authority (Finanstilynet) told IPE it was in the process of preparing amended regulation for composite undertakings – companies that offer life insurance, primarily in the form of pensions, as well as non-life insurance, such as accident and health cover.

The proposal will aim to ensure separate management of the two types of operation, so that life insurance activities are distinct from non-life insurance activities, according to the FSA.

In response to a question, a spokesman for the FSA said: “The Danish FSA has increased its focus on the losses that several composite undertakings suffer on non-life insurance activities because these losses potentially weaken the business models of life insurers.”

He said the aim of the amended regulation would be to ensure the viability and sustainability of the business model as a whole, and of the two separate parts – non-life insurance business and life insurance business.

“The work is ongoing,” he said.

More details are likely to be published soon, he said.

The spokesman confirmed that this proposal was being drafted in response to the Danish Competition Authority’s work into the pensions sector, which was first published in December 2019.

Back then, the competition watchdog produced a 342-page study of the sector, which it had started working on in June 2017, saying there were big gains to be had from improving competition between pension companies in the Nordic country.

It issued 22 recommendations aimed at strengthening competition, and highlighted loss-making non-life insurance activities as distorting competition in the sector.

The competition authority followed this up the following December with a report saying providers were making around 37% profit on the investment fees they charged scheme members, some of which was used to offer corporate clients insurance as a loss-leading sweetener – a practice which it said was stopping new providers getting a foothold.

In a related report this May, the Danish Competition Authority recommended “cross subsidisation between insurance and pension products” be restricted.

Danica Pension – one of the main commercial pension providers in Denmark – revealed in April that it had made a DKK290m loss on its health and accident insurance business in the first quarter of the year, roughly the same degree of loss that the division had suffered the same period a year earlier.

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