Swedish funds get green light despite increased risk

SWEDEN - All insurance companies including pension funds are "in the green" under the Swedish traffic light system, supervisor Finansinpektionen (FI) has announced.

Although the companies were judged by figures from end-June, FI pointed out it "believes that none of the companies would receive a red light if they were evaluated today despite the recent turbulence on the financial market".

That said, total risk exposure among pension companies increased in the second quarter, the supervisor noted.

As in previous quarters, equity price risk was identified as the most prominent risk, while interest rate risk has increased "significantly" for some companies.

Under the traffic light model, the Swedish supervisor is checking stress levels for insurance companies and occupational pension funds. It looks at financial, insurance and expense risks.

The model first calculates a capital buffer based on the fair value of both assets and liabilities and each company and pension fund is then subjected to a number of fictional stress scenarios, determined by FI, which imply a combined capital requirement.

If the company's funding buffer is considered insufficient, the traffic light model produces a red light.

At this point, the FI then conducts more in-depth assessments which are both quantitative and qualitative in nature, to ascertain whether there are serious risks to the financial stability of the company or pension fund.

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