The Norse drama of Länsförsäkringar Liv’s demutualisation continues as Sweden’s financial supervisor has agreed to grant the company the right to change its status, having first denied it. However, the original deadline of January 1, 2010 is too tight for the organisation to achieve its goal.

The point of contention related to the valuation of unspecified assets that are not included in the balance sheet of the life assurance company, which is important when it comes to distributing profits to policyholders. Before its appeal, directly after the negative ruling, Länsförsäkringar (LF) said it had changed its stance and agreed with the regulator, Finansinspektionen, on the point of profit distribution between policyholders and owners. This change of heart resulted in a positive ruling on November 12, just over a month after the initial decision. Christer Baldhagen, head of corporate communications, says it was a simple misunderstanding and once LF understood what the regulator meant, it realised that the regulator was in fact right.

Jörgen Svensson, president of LF Liv, said at the time of the regulator’s decision and before launching an appeal: “We believe that this matter is of such importance to both the policyholders of LF Liv and the industry as a whole that we wish to have the matter clarified. That is why we are lodging an appeal.”

Having been granted approval to demutualise, the victory was shortlived at the company. The ruling stipulated that LF would have to demutualise by January 1 2010 as was stated in the original application, giving the organisation less than two months to complete the change of status.

On November 19, LF said it would not be able to meet the deadline for the demutualisation and has therefore postponed the process. Mr Svensson said: “The demutualisation process requires valuations of the life assurance company’s assets that must be performed by an independent assessor and many other preparations. Another review of the requirements of the demutualisation process will subsequently be required based on these valuations. In addition, clarifications are needed in the issues pertaining to the future regulatory framework of Solvency II that have arisen during the autumn. The combination of all of these elements requires more working days than we have left until the end of the year; there are not enough working days to ensure that the demutualisation process is qualitative and stable.”

Because of the delay to the demutualisation process, LF will have to renew its application to the supervisor and customers will again have to vote on the issue, most likely sometime next year.

The demutualisation debacle has so far resulted not only in the delay, but also in Håkan Danielsson, the president of LF AB, having to step down. The chairman of LF’s board, Hans Jonsson, announced on October 23 that Mr Danielsson was leaving with the motivation that the rejection of the application by the supervisor was “disappointing and a failure”. In the interim, Sten Dunér, chief financial officer of LF AB, has stepped in as acting president and has also assumed Mr Danielsson’s chairmanships at subsidiaries LF Liv, LF Bank and LF Sak.

Five days after Mr Danielsson’s departure, which many within the organisation and the Swedish market saw as a surprise as he was a well-liked leader, LF decided to appeal the supervisor’s ruling to the Administrative Court of Appeal, having made it clear that it now shared the regulators views on profit distribution.

Commentators in Sweden were surprised by the regulator’s ruling, and some argue that it has caused unnecessary delay, which could have been avoided by better communication from the beginning.

Charlotta Carlberg, director of legal department at Finansinspektionen, says: “Finansinspektionen regarded its viewpoint as clear already before, but LF did not. With the ruling, any ambiguities should no longer exist.”

Some also argue that customers may have tired of the whole affair, even if demutualisation probably is a good deal for them, and may question it more, possibly rejecting the proposal. The timing of the demutualisation was questioned by some when it was announced, because of the shaky state of financial affairs globally.

Mr Baldhagen says that timing has never been an issue and does not believe that the financial and economic crises have worked against the decision. “It is precisely during a time of crisis and turmoil that the advantages of demutualisation are clear, because it is the owners that bear the risk, not the customers,” he says.

He also rebutted the suggestion that customers would vote against the demutualisation now or that they were more negative to the idea than they were when they first voted for the status change last year. “I am convinced that we will have an even larger majority voting for the demutualisation than we had before because the issue of profit distribution has now been cleared as we agree with the regulator.”

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