The Norwegian Financial Supervisory Authority (Finanstilsynet) has warned in its latest risk report that if interest rates remain low for a long time, it could be hard for life insurers to make good on the returns promises they have made to customers.
In Norway, most pension provision is offered via life insurance companies.
Publishing its Risk Outlook report for December, the authority said the capital adequacy of life insurers had been strengthened in recent years, and they were compliant with the Solvency II requirements.
“A protracted low interest rate level poses a challenge to institutions’ ability to achieve the guaranteed return on their investments,” it said.
Higher risk premiums in financial markets and declining equity prices were of particular consequence to insurers with a large proportion of paid-up policies in their portfolios, Finanstilsynet said.
Norwegian pension institutions were rapidly increasing their proportion of defined contribution (DC) pension plans, it said, but contracts with an annual guaranteed return still represented the greater part of their obligations.
The authority stressed providers had to tell customers about the risks involved in DC plans.
Morten Baltzersen, the regulator’s director general, said: “The transition from defined benefit to defined contribution pension schemes with no guaranteed rate of return entails that the return risk is transferred from employers or pension institutions to the individual member covered by the pension scheme.
“It is important that institutions give their customers detailed information about expected returns, risk and costs related to the defined contribution scheme,” he said.
Turning to pension funds, Finanstilsynet noted that new solvency requirements for these providers took effect in Norway on 1 January 2019.
“Pension funds meet the new solvency requirements, although there are wide variations in their financial soundness,” it said.