No country on the planet has a better-funded pension system than Denmark. So when its life insurance industry encounters some hurdles, it's worth paying attention.
Because of a challenging cocktail of record-low interest rates and stricter capital requirements, pension funds have been transferring risk to customers instead of keeping it on their own books.
Given the developments, the head of Denmark's financial supervisor wants a regulatory rethink to reflect the new world order he says many pension clients don't yet understand. Failure to reach agreement now just means rules will probably be even harsher in the future, he says.
Jesper Berg, the director general of Denmark's Financial Supervisory Authority, says insurers need to offer a range of risk-weighted returns that target a specified payout at retirement, and supervisors should be empowered to police those commitments more actively. Pension funds already divide product offerings into different risk categories, but the FSA says there's plenty of room for improvement. What constitutes medium risk, for example, varies widely.