The latest statistics from the Swedish Finansinspektionen, the national financial supervisory authority, show that Swedish pension fund managers and life insurance offices have eased back on the share of equities in their portfolios as at the end of September 1997.

The figures show that equity sales by life offices amounted to Skr22.2bn($2.8bn) for the first nine months of 1997, compared with Skr25.9bn in the same period of 1996.

But even if there is something of a decrease in the percentage of equity holdings, there is still only slight differences between the various managers as to the weighting of their portfolios.

In general some 40-45 % of the total assets are invested in equities, 35-40 % in bonds and remaining capital in property, loans and cash.

Lars Florén deputy asset management director of WASA, an insurance group with some Skr 65bn under management, says:It would not be correct to claim that the investments are identical between the life offices. A difference of 4% in favour of equities is quite substantial, in view of the total capital invested".

Bo Ingemarson, executive vice president of Skandia, claims that much of the asset allocation is defined by simple arithmetic.

"A person with 25 years to retirement could of course permit himself a 75% equity share, but we have to see to our whole range of insureds. With that perspective the asset allocation of today is more or less natural" he says.

About the net equity disinvestment in the Finansinspektionen survey, he claims that many decisions to buy and sell have been taken since and there is not a trend to lower the equity share in the portfolio.

"It just depends on what day or week the measurement is made", he says.

A representative of SPP, the largest Swedish pension fund manager claims the asset allocation policy of the Swedish life offices is a result of myopia. "I believe this is because Swedish life insurers traditionally have been trying to avoid fluctuating results over time. The focus on the annual returns has led to a short perspective in the investment policies. This is because the marketing has been concentrated on the annual bonuses", he says. This implies that pension savers would benefit from a greater equity share in the portfolios.

With the booming stockmarkets of 1996, the surpluses in the life offices have grown and the policy holders have been greatly rewarded.

"Our annual bonus this year is record high 27 % which is a way of cutting down the surpluses and handing out profits to the insured", says Bo Ingemarson.

Unlike in many other countries the annual bonus in Swedish traditional life insurance is not guaranteed. It can be taken away if the office needs to cover losses. This happened in 1992, but was then done in a technical way, to take focus off the fact that bonuses actually were taken back from the insured.

The pension fund managers in Sweden can be divided into four groups:

l Managers of collective service pension plans, like AMF or SPP. In the SPPS case many large corporations have the possibility to insure their collective liabilities and thus keep them in their own books. At present there is a shift where liabilities are cashed in and are being transferred to new foundations in order to separate pension liabilities from the daily business and to increase returns.

l Private foundations for retirement for companies lacking union agreement for service pensions or for board members or self employed. These foundations have some Skr 70 bn under management. Their number is growing with the cashing in the ITP-plan.

l Funds of the mutual life offices with private pensions or service pensions.

l State pension funds, AP-fonderna, a surplus fund designed to meet variations in the outgoing pensions in the state pension system.

The collective service pensions plans are under reform which means that the blue collars working plan administered by the AMF, will open up for competition from different fund managers in 1999. This means that AMF that so far has administered a kind of PAYG-plan, will compete with other managers on a new defined contributions plan where fund managers are chosen by the individuals.

"This will of course cut our market share but we are confident that we will keep a positive cash-flow between premiums and pensions even after the change", says Tor Marthin, chief of finance at AMF. Even SPP administering the white collar workers retirement plan ITP, will face changes but here negotiations still are under way. Unions and employers are drifting towards a defined contributions plan, but so far the question is not resolved. However the mutual SPP, controlled by unions and employers, is uneasy with its enormous surplus of some Skr 120 bn. The argument is whether the surplus money belongs to the employers or the employees and the SPP board keep investigating what surplus might be needed, and whether it really is to be viewed as a surplus or as a cushion for hard times to come.

Both AMF and SPP show the same investment patterns as any of the private offices entrusted with the pension premiums of Swedish private investors even if AMF tend to invest more in equities.

"It is an ongoing discussion whether we should increase our share of equities but I foresee no dramatic changes in the near future", says Tor Marthin.

The state fund, AP-fonden, with a market value of some Skr 700bn is going to melt down slowly as the new partly funded pensions system is introduced in the year 2001. The process is however going to be slow and projections show that the AP-fonden is going to be of substantial value for at least 20 years or more, depending on the growth rate in the economy.

The investments made by the AP-fund have traditionally been very cautious and the absolute majority of assets has been invested in government bonds. Some sub funds of the large AP-fund, named AP-fund, 4-6, however have had more liberal rules and now hold equities to a market value of some Skr 80 bn, or 15 % of the total for AP-fund, taken as one.

At the moment a parliamentary bill to the Riksdag is planned to propose more liberal investment regulation thus enabling the AP-fund to invest more in equities in order to increase returns. The proposal is rumoured to be presented before the end of 1997, and new rules could be in effect by 1998, if the bill passes.

Mikael Nyman is editor of 'Pensioner & Förmåner' newsletter in Stockholm"

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