Four of Sweden’s largest pension providers have urged the Ministry of Finance to regulate the occupational pension sector with a tailor-made framework rather than subject them to Solvency II.
In the letter sent by Alecta, AMF, Folksam and Folksam’s local government subsidiary KPA at the beginning of April, the four providers outline why the government should consider a new standalone regulatory framework, based on the current traffic-light system for assessing the financial stability of providers, rather than impose the insurance regulation on the sector from 2019.
The framework would formalise the traffic-light system used by regulator Finansinspektionen (FI), which includes stress tests for equity, credit, interest rate, real estate and currency risks, while allowing the providers to maintain their current mark-to-market balance sheets, according to one of the signatories.
Signed by Steffan Grefbäck, Jens Henriksson and Mia Liblik, chief executives at Alecta, Folksam and KPA, respectively, as well as AMF deputy chief executive Peder Hasslev, the letter calls on Sweden’s government to agree details of the regulatory framework rather than delegate responsibility for its design to FI.
Daniel Burr, Solvency II lead at signatory Folksam, said the letter was an effort by the industry to show it was willing to accept risk-based capital requirements.
It comes after plans unveiled in 2014 to allow for a standalone occupational pensions vehicle, with tailor-made capital requirements designed by FI, were resisted by the industry, as it was expected they would only be in force for a limited number of years until IORP II capital requirements were introduced.
Discussing the letter, Burr told IPE: “We tried to be helpful and send in this proposal to the government, saying we could accept a risk-based capital requirement.
“We proposed they use the present traffic-light system, basically a value-at-risk measure on the balance sheet similar to Solvency II but much simpler, and it’s tailored to Swedish conditions, having been used for 10 years.”
Burr noted that, unlike with Solvency II, the traffic-light approach would not need providers to create a new balance sheet, and that they could maintain their current mark-to-market model.
He was hopeful the government would consider the initiative.
“It’s better to belong to a tailor-made regulation for occupational schemes than apply regulation that should fit everything from insurance to reinsurance and everything in between,” he said.