Storebrand ASA : 17.01.2012 Storebrand:The Banking Law Commission's proposal concerning paid-up policies and capital requirements

The Banking Law Commission's report NOU 2012:3 was submitted to the Ministry of Finance today, 17 January 2012. In this report the Banking Law Commission proposes amendments to the Defined Benefit Pension Act regarding paid-up policies. The Banking Law Commission will pursue work on new regulations for insurance-based occupational pension schemes adapted to the pension reform and altered market conditions.

In NOU 2012:3 the Banking Law Commission points out that the existing regulations for paid- up policies will lead to a significant increase in the solvency capital requirement under Solvency II. Among other things, the Banking Law Commission describes a "worst case scenario" where capital requirements as a result of future paid-up policies will not be manageable without significant adjustments in the regulatory framework (NOU 2012:3 page 39).

The assessments made by the Banking Law Commission in the report generally correspond to what Storebrand has previously communicated in terms of the need for adaption of the Norwegian regulatory framework to Solvency II. Changes in the Norwegian regulatory framework are necessary to ensure a good and stable occupational pension system for businesses and employees.

 In NOU 2012:3 the Banking Law Commission proposes amendments that may contribute to improved adaptation of paid-up policies to the capital requirements pursuant to Solvency II. The main issues of the Banking Law Commission's proposal are:

1.    Voluntary conversion of paid-up policies to paid-up policies with investment choice
            The Banking Law Commission proposes allowing customers to voluntarily convert paid-up policies to unit-linked based paid-up policies without guarantees.

2.    Conversion of small paid-up policies to individual pension agreements
            Currently, the company can convert paid-up policies that constitute less than 50 per cent of the national insurance base amount (G) to an individual pension agreement without guarantee. The Banking Law Commission proposes that the threshold for conversion is increased to 150 per cent of 1 G for new paid-up policies. This constitutes approximately 13 per cent of the reserve volume of expected future paid up-policies in Norway.

3.    Shorter payment time for small paid-up policies
            The Banking Law Commission proposes to change regulations such that more small paid-up policies can be paid as time-limited rather than life-long benefits.

Storebrand is positive toward giving customers more choice in the management of paid-up policies. Storebrand supports the proposed measures, which will contribute to a reduction of the capital requirements under Solvency II. At the same time we would like to emphasize that the proposed changes are not sufficient to resolve the challenges related to paid-up policies under Solvency II for the Norwegian occupational pension market. Storebrand has a constructive dialogue with the authorities concerning these issues.

The Banking Law Commission's present report will now be considered by the Ministry of Finance, and public consultation is expected in the first half of 2012.

The Banking Law Commission will continue to work on new regulations for insurance-based occupational pension schemes. The main issues in this work are:

• Designing new insurance-based pension schemes that are competitive alternatives in relation to both the businesses' costs and to the pension instruments' return risk and biometric risk, inter alia with an aim to reduce the effects of a new capital requirement regime.
  

• Handling of new pension rights earned under existing pension schemes in the transition to new insurance-based pension schemes. Important to avoid incentives for the discontinuation of existing pension schemes and the issuing of new paid-up policies to a significant extent.

The Banking Law Commission plans to return to this in the course of May/June 2012.

The Banking Law Commission emphasizes the importance of ensuring that the life insurance companies have access to long-term interest investments with low risk in Norwegian kroner.  The Banking Law Commission does not have the mandate to report on and propose measures to strengthen access to such long-term interest investments.

"In the report, the Banking Law Commission discusses the challenges that life insurance companies are facing in the management of paid-up policies. In addition to the specific proposals put forward, the report gives a good basis for analysis for the work on new pension products". (Press release from the  Minister of Finance Sigbjørn Johnsen.)

Lysaker, 17 January 2012

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