Denmark’s financial regulator has sent letters to 25 of the country’s life insurers and pension providers ordering them to change the way they calculate their solvency reserves, after finding they have not been using the new method required under the full implementation of Solvency II.
The FSA (Finanstilsynet) has now given the companies – mostly occupational pension providers – nearly three years to correct their balance sheets, and says it is not yet clear what effect the adjustments will have.
In a statement, the watchdog said: “The FSA has published its follow-up to the December 2018 Christmas letter on corporate valuation of provisions for solvency purposes.
“Twenty-five companies have been ordered to calculate the provisions in accordance with the applicable requirements in the valuation notice.”
In December 2017, an amendment to the valuation order for insurance obligations (værdiansættelsesbekendtgørelsen) came into force, as part of the full implementation of Solvency II. This has meant the companies can no longer use the same valuation method for solvency purposes as they use for accounting.
Recipients of the brief letters containing an official order (påbud) to take action include the majority of the country’s main pension providers, such as AP Pension, MP Pension, Norli Pension, Industriens Pension, Danica Pension, PenSam Liv and TopDanmark.
However, the FSA said that a further three companies had determined their solvency provisions in accordance with the principles set out in the valuation order, without naming these firms.
The regulator said that because of the large methodological adjustments, “it is not immediately clear what effects the necessary adjustments may have, and that there may, therefore, be uncertainty associated with the calculation of provisions and solvency in the intervening period”.
Because of this, the FSA said that in collaboration with the firms, it would continuously assess the need for temporary measures until the change methods were fully implemented.
The companies have been given until the end of 2022 to make the adjustments.