Demand for pension insurance in Sweden is rising

3 Mar 2016

According to a new report by Timetric, pension insurance is set to remain the largest category in the Swedish life insurance segment during the next four years.

During the review period (2010-2014) pension insurance was a leading category in the life insurance segment , accounting for 45.8% of the segment's gross written premium in 2014, with a value of SEK106.8 billion (US$15.6 billion). Timetric forecasts pensions insurance to remain the largest category and generate a gross written premium of SEK158.6 billion (US$20.3 billion) in 2019, after recording a forecast period CAGR of 8.2%.

The strong growth of the pension category was due to a number of new pension policies. These combined with rising public awareness of the benefits of pension products, an aging population and increase in employment have driven the category.

Future regulation poses uncertainties

Despite a positive outlook for pensions insurance, there are doubts over future regulation on pension fund companies. Occupational pension providers in Sweden take the form of life insurance companies who are also authorised to provide pension products. Since life companies in the EU are regulated by Solvency II, and pension fund companies under the Institutions for Occupational Retirement Provision (IOPR) II, there is uncertainty over how pension providers' capital requirements will be determined. The government is also contemplating the separation of the life and pension businesses within life insurance companies that provide both products. However, at the time of publication a final decision had not been reached. This creates uncertainty for companies in terms of future investments, and is likely to add to capital pressure for insurers.

Negative interest rates add to woes of life insurers

Life insurers in Sweden have sold a substantial amount of retirement related products that offer policyholders guaranteed returns. These returns are becoming ever more difficult to achieve in the current ultra-low interest rate environment. Last month the Executive Board of the Riksbank decided to cut interest rates from -0.35% to -0.5%. One of the effects of these lower rates is that they have reduced the return on government bonds that tend to make up a significant proportion of life insurers' investment portfolios. These insurers will face a challenge in rebalancing their portfolios to achieve the risk adjusted returns required, to meet their liabilities.

"A key reason for Sweden's low interest rates is to ward of deflation by ensuring the Krona does not become too strong relative to the currencies of its main trading partners in the Eurozone countries. With the ECB expected to further ease monetary policy in the currency bloc, the problem of low interest rates for Swedish life insurers is expected to persist," comments Jay Patel, Insurance Analyst at Timetric.

All information is based on the Timetric report: 'Life Insurance in Sweden, Key Trends and Opportunities to 2019'.

Source: Company Press Release