NORWAY – Norway's financial regulator is to introduce new mortality tables for group pensions and insurers, forcing them to increase provisions considerably.

The Norwegian financial markets regulator Finanstilsynet said the new longevity basis for collective pension insurance, life insurance companies and pension funds would take effect from 2014.

The new tables use a dynamic mortality model, replacing the current static mortality model, and are partly based on proposals by financial industry federation Finans Norge (FNO).

Dynamic mortality models assume there is an ongoing improvement in mortality during the forecasting period.

The tables are based on Finans Norge and Statistics Norway’s 2013 mortality proposal plus a 12% margin and a drop in mortality corresponding to Statistics Norway’s "middle alternative" plus a 10% margin, the FSA said.

Morten Baltzersen, financial supervisory director at Finanstilsynet, said: "Increased life expectancy is a challenge for insurance companies and pension funds.

"This requires higher premiums and higher technical provisions in order to have enough funds to cover future liabilities," he added.

The new mortality tables will increase provision requirements significantly, the regulator said, and added that it assumed most providers would need an escalation period during which they gradually built up the necessary provisions.

Escalation plans will start in 2014 and should not last more than five years, it said, adding that companies would be allowed to use their consumer surplus to cover the increased provision requirements. At least 20% of the increase in reserves requirements should be covered by the pension schemes themselves, Finanstilsynet added.

Norwegian pensions and insurance group Storebrand said the new mortality tables were more stringent than expected.

They also included high safety margins for increased mortality related to widows and orphans insurance, Storebrand said.

It said Finanstilsynet had not taken the Banking Law Commission's proposal for new rules for step-up plans and more flexible use of buffers into consideration.

"Safety margins have been added both to current mortality rates and to expected changes in mortality," it said.

Storebrand said that in its opinion, widows and orphans insurance did not need additional safety margins.

FNO also saw the new reserve requirements as stricter than foreseen.

Idar Kreutzer, managing director of FNO said: "Finanstilsynet's assessment of required provisions is high and more stringent than expected."

He added: "Finans Norge will hold discussions with Finanstilsynet about the calculation basis, escalation plans and implementation of the new model."

Storebrand said that as a result of the new mortality tables, it estimates its total reserve need for group pensions will be around NOK11.5bn (€1.55bn), or about 8% of its premium reserves.

The total contribution from the owner is expected to be about NOK2.3bn, including loss of profit-sharing from paid-up policies.

Between 2011 and 2012, Storebrand set aside NOK4.3bn to cover changes required by the new mortality tables, it said.

From 2013 onwards, all surplus return from group pensions and paid-up policies portfolios will be used to add reserves to cover longevity, the company said, adding that it had other buffers that may be used to ensure enough returns to cover the build-up of reserves.

Storebrand said it did not foresee any immediate effect on reported IFRS accounts as a result of the changes.

Earlier this year, Norway's Oslo Pensjonsforsikring said it had set aside NOK831m to fund increased longevity, awaiting the new minimum tariffs and regulations on public sector pensions.

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