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Six Danish life insurers and pension funds fail Solvency II test

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  • Six Danish life insurers and pension funds fail Solvency II test

DENMARK - Six Danish life insurers and pension funds have failed the recent Impact Study for Solvency II, but the majority are prepared for the new guidelines, the country's industry association said.

Finanstilsynet, the Danish Financial Services Authority (FSA), has released the local results of the fifth Quantitative Impact Study for Solvency II (QIS 5), with the new guidelines  on course for implementation from January 2013.

Per Ploughmand Bærtelsen, department head at the FSA, said that pension schemes looking to reduce the impact of legislation could look towards cutting their benefits.

Of the results, he said: "The general picture […] is that the Danish insurance sector can meet the coming quantitative demands of Solvency II. Overall, however, Danish companies will have a slightly lower solvency surplus than under the current capital requirements."

Per Bremer Rasmussen, managing director of the Danish Insurance Association (Forsikring og Pension, F&P), added it was "satisfying" that that figures showed Danish insurers and pension funds were well equipped for the new regime on solvency.

However, in Denmark six life insurers and pension funds were, as of December 31, 2009, not able to meet the capital demands, according to the regulator. Some of these were entities within larger companies which could be expected to be able to provide the necessary capital, it said.

But falling outside this group were three institutions in the life and pensions sector, which had a combined market share of 8.1%, the Danish FSA said.

Typically, companies offering high guarantees were the ones hit by Solvency II, said Ploughmand Bærtelsen. Companies that did not meet the requirements now had a range of different options to shape up before the legislation came in, the regulator said.

"Companies can raise new capital or merge with other companies," Ploughmand Bærtelsen said.

"Apart from this, they can rearrange assets or counter risks by hedging and reinsurance. Furthermore, pension funds can undertake ballots with a view to reducing guarantees, which require capital."
 
Rasmussen stressed that QIS 5 was a test of the regulations that are in the process of being formulated, rather than a test of the companies themselves.

"The purpose of QIS 5 is just to discover whether changes should be made to the proposed regulations before they come into effect", he said.

"It is already clear that the Solvency II rules are very complex and the Danish Insurance Association will push for simplifications, without reducing consumer protection, which is the whole point of Solvency II."

"But that said, it is satisfying that Danish insurance companies and pension funds stand well equipped for the new solvency regulations," Bremer Rasmussen said.

F&P had expected this to be the case at this point, he said, because current Danish regulations have been arranged in line with Solvency II over the course of the last several years.

He said there were no conclusions to be drawn about the "relatively few" companies that, according to the calculations, would have to actively do something to meet the expected future demands.

"We should make sure we are not so intent on sticking to the deadline of January 2013 that we implement the new rules before all the other European countries," he said.

Bremer Rasmussen added: "We should at least make sure we don't create a long list of onerous administrative demands, which is not in the interests of consumers."

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