Danish pensions and insurance lobby group Insurance & Pension Denmark (IPD) defended its members after the country’s supervisor said pension providers should explain their alternatives revaluation rationales.
The Danish FSA (Finanstilsynet) had also expressed surprise at the widely-differing approaches to this in the sector.
Jan Hansen, deputy CEO of IPD, said: “Of course, the companies can explain the value adjustment of their unlisted assets.”
He added that rules surrounding valuations of alternatives involved a significant degree of opinion, and that there were many different asset types, risk profiles and investment structures.
Pension funds had to continuously adjust valuations based on changes in circumstances relating to the market or the individual investment, he said.
Hansen said the law was clear that the individual companies were ultimately responsible for the valuations.
“Insurance & Pension Denmark acknowledges the result of the Danish FSA’s thematic survey on current valuations of unlisted assets in 2020,” he said, adding it was positive and expected that the survey had not given rise to any supervisory reactions.
Separately, IPD rebuffed a conclusion from the Danish Consumer and Competition Authority (KFST) that the current fee model used by the country’s commercial pension providers was preventing new players from asserting themselves in the market.
The association said in a statement: “The company pension market is characterised by fierce competition, although the KFST does not recognise this and in fact claims that the pension companies are hampering competition.”
IPD said there was indeed competition for the price of insurance when company pension schemes were put out to tender.
“At the same time, insurance is affected by increasing payments, for example, to stress-stricken Danes,” the association said, adding that this meant the business area was going into the red for some pension companies.
To do reasonable business as a whole, IPD said these companies needed to make more money in other areas.
Danish FSA to scrutinise pension fund management systems in 2021
Denmark’s financial watchdog has also written to pension providers in Denmark, saying their supervisory boards have until July 2021 to submit statements about whether management systems worked well given Solvency II requirements, and measures they are taking in this area.
In a statement, the Danish FSA said: “The theme of this year’s Christmas letter must be seen in the light of the Danish FSA’s strategy 2025, where areas of focus include the importance of well-functioning and efficient management systems”.
In the letters sent out to life insurance companies and industry-wide pension funds, the financial supervisor said boards should provide information about how the organisation of management, and the management system’s resources, ensured “sound support” both for the company’s current business activities and risk profile – as well as any plans for development.
With the introduction of the Solvency II directive in 2016, the authority said, additional requirements had been introduced for the management systems of Group 1 insurance companies – which made up the vast majority of insurance companies and cross-border pension funds in Denmark.
In addition to the previous general rules for corporate governance, under Solvency II, it said these companies were subject to specific requirements to have at least four key functions: risk management; actuarial; compliance and internal audit.
The FSA said that with its new thematic study, it aimed to gain insight into these supervised entities their resources, the efficiency of cooperation between the functions and management, and how any conflicts of interest were handled.
In last year’s Christmas letter (julebrev), the watchdog homed in on ‘greenwashing’ – the false marketing of products as sustainable – and other potential financial risks faced by pension funds in relation to climate change.
AP7 shrinks fee for its SEK630bn equity fund
Sweden’s AP7 announced it is shaving the management fee for its SEK630bn (€62.4bn) equity fund to 0.075% from 0.08%, with the change taking effect from 1 January 2021.
Around five million Swedes invest in the giant equity fund, which is the main building block for the national pension fund’s Såfa default option in the country’s premium pension system.
Richard Gröttheim, AP7’s chief executive officer, said: “We have a responsibility to gradually reduce the fee whenever we can.”
AP7 said the fee for its equity fund was last reduced in January, and that the fee for its fixed income fund - Såfa’s other building block - was remaining unchanged at 0.04%.
Since 2010, the pension fund said the average fee paid by savers for Såfa had more than halved to 0.06% from 0.13%.
“Over a ten-year period of fee reductions, we have also improved AP7 Såfa, making it an increasingly sophisticated product, while continuously developing our role as an active owner in our sustainability work,” Gröttheim said.
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