The capital requirements for insurance companies under the Solvency II regulatory regime are working fine and are appropriate for all defined benefit pension schemes, not just those incorporated as insurers, the head of Oslo Pensjonsforsikring (OPF) says.

Åmund Lunde, chief executive of the NOK80bn (€8.6bn) Norwegian municipal pension fund, told IPE: “The capital levels they’re requiring from pension funds for the management of pension obligations are appropriate for the risk you’re taking.”

In February, the Norwegian finance ministry called for regulation bringing in capital requirements for the country’s pension funds based on a simplified version of the EU’s Solvency II framework.

Norway is not in the European Union but is part of the European Economic Area (EEA).

Lunde said that, for OPF, the new capital requirements of Solvency II, which took effect at the beginning of this year, were working fine.

“The capital requirement gives us a good estimate of the buffer level we need to have,” he said.

Particularly given the very low level of interest rates right now, he said there was a risk pension providers with liabilities would be unable to generate sufficient returns from bonds to meet their obligations.

But on the other hand, he said, if they switch asset allocation towards other assets, the market risk is definitely higher, adding that pension providers also face the risk of rising life-expectancy estimates.

“In our company, these rules do take these things into account in quite a sensible manner,” Lunde said.

In its annual report for 2015, OPF said its preliminary Solvency II capital ratio ended the year at 211%.

Lunde said the pension fund had set itself the target of making the transition to the new solvency regime back in 2010.

Some European pension providers, such as OPF and most Danish pension providers, are incorporated as life insurers, which has brought them under the Solvency II Directive, while pension funds in the EU will be subject to the IORP II Directive when it is finalised and comes into force.

In its earlier draft form, this directive did contain capital requirements for pension funds along the lines of those in Solvency II, but these were rejected by the European Parliament’s ECON committee in January.

The committee said then that quantitative capital requirements could make employers less willing to provide occupational pension schemes.

But Lane, Clark & Peacock in the UK has recently pointed out that, even though there should be no new solvency requirements for pension schemes included in the final draft of the directive, the threat of tighter solvency requirements is still there.

This is because, in its current format, article 75 of IORP II states that quantitative requirements for pension schemes will be reviewed within six years, the firm said.

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