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Finansinspektionen (FI), the Swedish financial supervisory authority, has launched a new version of the traffic-light model to include insurance risks – a move that could impact on company calculations of the life expectancy.
The new version will include insurance companies, occupational pension funds and non-life insurance companies and will measure their sensitivity to financial risks, insurance risks and expense risks. The traffic-light model, which measures companies’ exposure to various risks, has up until now only measured financial risks.
“It will now be mandatory for 190 insurance companies to report to FI,” said Bertil Sjöö, head of the insurance risks unit at FI. “We planned to include insurance risks from the start and had a model out for review in November 2006 but it is a complicated task. The financial risks are a lot easier to test and also hit companies harder.”
The traffic-light model for financial risks remains almost completely unchanged, and only includes changes for four firms that report conditional bonuses. “However, one of the main issues the new regulations will expose is the varying ways insurance firms calculate life expectancy,” said Mats Langensjö, managing director at Aon consulting.
The model for measuring insurance risks is still under development, as FI lacks enough information to determine stress levels. The information about insurance risks will be used to calibrate the levels in the model, although no regulatory action will be taken by the FI until the summer.
CL
