NORWAY - The Financial Supervisory Authority of Norway (Kredittilsynet) is working on new regulations concerning investment policy for insurance companies and pension funds with the intention of introducing them at year end.
Tom Ottar Doviken, senior adviser, Kredittilsynet, said there was concern among insurance companies and pension funds that current regulations were outdated.
“The process is partly motivated by the implementation of the IORP Directive and partly by the new (2005) national insurance legislation,” he said.
“Besides, the asset markets have developed heavily since the current regulations were passed in 1997 so that the regulations are somewhat outdated.”
The scope of the changes will be wide-reaching, he added, and the industry has been given the chance to put forward their views.
“It is difficult to predict the timeframe, but a proposal will presumably be finalised by the FSA and presented to the Ministry in April 2006,” he said. “After a public hearing administered by the Ministry, new regulations will possibly take effect at the end of this year.”
The FSA has also proposed the introduction of capital solvency tests along the lines of the traffic light system in Sweden and Denmark. A proposal has been put to the Ministry of Finance, with an answer expected in the first half of 2006.
However Rolf Skomsvold, general secretary of the Norwegian Association of Pension Funds (Norske Pensjonskassers Forening/ NPF), said such a system would turn the pension industry “upside down”, citing concerns over a supply shortage of long bonds.
“In today’s system you have to have extra funds if you have long bonds in your portfolio,” he said. “If we get this new system, where you also look at the duration of your obligations, you turn that upside down, so that could have a major impact on the bond market in Norway.”
Skomsvold added: “[Supply] is very low, because the bond market isn’t very efficient and the state don’t issue much because the Norwegian state don’t have any need for them, they are running quite a big surplus because of the oil taxes. We would probably have even more difficulties than what I have seen in Denmark and the Netherlands.”
Ottar Doviken agreed this was a concern: “The low supply of long bonds in the Norwegian market could result in problems in terms of supply shortage, as pension funds (within the proposed model) will seek to match the duration of their liabilities in order to avoid a substantial increase in required capital. Resolving this, however, means issuing long bonds or alternative instruments on a large scale, and making macroeconomic decisions of that kind will be far beyond the scope of the FSA.”
He added that a possible way forward, if the proposal was approved, would be to set up “working parties” on the back of a consultation period with a mandate to elaborate on the details and prepare further quantitative studies on the impact.
“A further analysis of the problems arising from the bond supply shortage might be a task for one of the possible working parties,” he said.
By Kristen Paech
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