​Persistent inflation to raise cost of DB provision, says Swedish lobby

Lasting high inflation will hit the Swedish insurance sector – which includes occupational pension providers – in many different ways, an industry lobby group has warned, including pushing up the cost of defined benefit (DB) provision if the rapid rise in consumer prices beds in.

But at the same time, the association said insurance and pension firms were still on a solid financial footing and could cope well with weaker economic conditions.

In Insurance Sweden’s (Svensk Försäkring) new report “Global Trends in 2023”, the association’s chief executive officer Christina Lindenius said: “The high inflation affects the insurance industry in several different ways, especially if it persists for a long time.”

For life insurance and occupational pension companies, one effect was that they faced larger future payments of value-guaranteed DB pensions, she said, in the introduction to the report published on Friday.

“The extent to which premiums will rise as a result of the high inflation depends, among other things, on the competitive situation,” Lindenius said.

Falling stock prices meant that the total return on life insurance and occupational pension companies’ assets in 2022 was expected to be at its lowest level for 20 years, the CEO of the Stockholm-based organisation said.

“The insurance and occupational pension companies, however, continue to have a good financial position and a good ability to handle poorer economic development,” she said.

Regarding how a slowdown in the economy could affect the life insurance and occupational pensions business, Insurance Sweden said in its report that occupational pension premiums may decrease if unemployment increases.

In addition, it said that premiums paid for private endowment and pension insurance depended more on the development of the financial markets, where a continued stockmarket decline could probably erode people’s interest in saving via these products.

The lobby group also said in the report that in the longer term, the higher interest rates could lead to higher returns – because the return on bond holdings would gradually increase as the holdings were replaced by new bonds with higher interest rates.

“However, the higher interest rates may negatively affect the companies’ property holdings, which would mean a lower total return,” it said.

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