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Swedish roundup: Solvency II regulations, Österåker, Swedbank

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  • Swedish roundup: Solvency II regulations, Österåker, Swedbank

SWEDEN - The Swedish Solvency II inquiry, headed by Daniel Barr, has urged the government to introduce a new type of occupational pension institution with a differing regulatory framework from insurance providers.

Under this new framework the Swedish model - where occupational pensions are managed in insurance vehicles - would remain intact and current occupational pension providers, whether an industry specific or insurance company, would continue to operate.

Barr, head of bank support at the Swedish national debt office Riksgälden, said it was not reasonable for Swedish companies to be at a disadvantage compared with European counterparts under Solvency II.

He said the Swedish suggestion would make it clear that the IORP directive would be equivalent to the Swedish the regulatory framework for occupational pension providers and Solvency II the equivalent of the Swedish regulation for insurance companies. The advantage would be clarity, with Swedish organisations able to choose under which framework they wish to operate, according to Barr.

The new occupational pensions institutions would be able to provide other pension-related products, such as insurance cover for work-place accidents and unemployment.

According to the findings of the inquiry, companies that wish to operate under the new system would have to report this to the Swedish regulator, Finansinspektionen, providing a detailed plan on how they will comply with the requirements.

The current occupational pension providers would be able to operate under the older rules with transition period as already suggested. However, the inquiry wants this transition period to be extended to 2015.

Insurance companies, mutual insurance companies and insurance associations which almost exclusively provide occupational pensions products would be able to continue with their operations under current rules during the transition period.

The inquiry report also argued that Solvency II would favour larger insurance companies, with capital adequacy requirements increasing dramatically under the regulation. Therefore, the report found that companies with a small product line and low capital buffers would benefit from merging to bring down costs.

Additiinally, under Solvency II administration costs would rise, creating scale benefits for merged companies and further incentivising such changes.

Another result of the increased capital requirements the report noted was that insurance premiums would increase. The report suggested that customers may feel they are not getting value for money, resulting in companies offering less insurance rather than increasing prices which would further speed up the move from traditional guaranteed products to fund solutions.

It further said that a solution would be to increase prices when changing products - requiring less capital and thereby reducing risk. In other words, the report said there would be less reliance on equities, noting that this would mean lower returns and lower pensions which could reduce the demand for insurance products.

Meanwhile, the local authority of Österåker has been forced to re-tender an asset management and financial advice mandate after a complaint by Swedbank Robur was upheld at the Administrative Court in Stockholm.

Österåker had used what is called a simplified procedure to tender for asset management and financial advice, after which it appointed Söderberg & Partners. But Swedbank Robur, which also submitted a proposal, wanted the tender to be done in accordance with the Public Procurement Act.

The reason for the complaint was that, according to Swedbank Robur, the process was not in accordance with the principles of transparency and equality. It argued that the selection criteria favoured existing service providers. Söderberg & Partners had done a study and created a investment policy for the local authority.

In its decision the court stated that eight out of 11 points in the request for proposals (RFP) concern the ability of the provider, rather than the service to be offered. These points do not represent evaluation criteria as stated in the Public Procurement Act, and are a violation, it said.

The court stated that the deficiency in the RFP has affected the competitive element in the tender process which therefore has to be conducted again.

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