SWEDEN - The buffer capital of Swedish pension companies fell by 18% in the third quarter, although the Finansinspektionen (FI) claimed they still have enough to meet the legal requirements.

In the third quarter update from the Swedish traffic-light model, the FI - the Swedish Financial Supervisory Authority - stated, "pension companies continue to have a good capacity to fulfil their guaranteed commitments to customers".

It highlighted that no insurance company had received a red light by the 30 September 2008, even though the buffer capital fell by 18% - compared with a 4% increase in capital for non-life insurance companies - as it said the overall financial risk exposure for both types of insurance firm had reduced from the levels reported in the second quarter.

But despite concerns over the economic situation the FI assessment is that "the companies have the capital required by law as protection of the policyholders' guaranteed pensions, despite the continued negative development that has characterised the market".

The traffic-light model, introduced in 2005, measures the exposure of insurance companies to large price fluctuations on the financial markets - such as a 40% fall in Swedish shares and a 35% drop in real estate prices - with the aim of identifying at an early stage those companies with such high levels of risk exposure that they cannot "with sufficient security" meet their customer commitments.

However only one insurance company - Prometheus - has been given a red light status, in 2006, and as a result the Administrative Court of Appeal has ruled it must change the composition of its assets to modify its risk exposure. 

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com