Implementing the Occupational Pensions Directive in Sweden Eva Ekström Deputy Head of Prudential Supervision

Pensions system Statutory benefits Employment benefits and private life insurance -Collective agreements -Individual contracts

Prudent Person Principle Overriding requirements: –investments should have a policyholder- perspective –assets should be sufficiently diversified and reflect the liabilities –the internal processes should hold a suitable quality –an investment can never be regarded as a single event, it has to be seen as part of the total portfolio (assets and liabilities) –management must understand the risks that the company is taking

Objectives The information provided to the policyholder sholud be fair and relevant The justified interests of policyholders should be protected The compani9es sholud have the financial strength required to fulfill their commitments

Supervisory Process Collection of Data Analysis of Data Decision point Action

Supervision Indication of problems? Stress test (Traffic Light) Investment Guidelines Key ratios Sample survey In-depth review

Quantitative analysis Key performance indicator analysis Solvency ratio analysis Traffic light Assets covering technical provisions analysis Actuarial report analysis Control of investments guidelines

Qalitative supervision On site inspections –Risk specific –General internal control and governance –Newly licensed firms Off site inspections Enhanced analysis Surveys etc.

Traffic Light Measures the exposure to market risk Realistic valuation of assets and liabilities Net effect of the assets and liabilities change in value Assumes that changes in assets are independent

Traffic light model Equity risk Interest rate risk Currency risk Property risk Credit risk

Investment Guidelines Investment Guidelines should include the following: –Risk level of the total portfolio –Methods for measuring market risk –Stress tests performed –Strategic asset allocation –Process for risk control –Process for risk management Investment Guidelines have to be approved by the Board

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