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IMF Country Report No. 23/64
FINLAND
FINANCIAL SECTOR ASSESSMENT PROGRAM
TECHNICAL NOTE ON NON-BANK FINANCIAL INTERMEDIATION AND PENSION INSURANCE COMPANIES
February 2023
This Technical Note on Non-Bank Financial Intermediation and Pension Insurance Companies for the Finland FSAP was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on January 20, 2023.
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Title page
FINLAND
FINANCIAL SECTOR ASSESSMENT PROGRAM
TECHNICAL NOTE
NON-BANK FINANCIAL INTERMEDIATION AND PENSION INSURANCE COMPANIES
January 20, 2023
Approved By Prepared By
Monetary and Capital Markets Department
This Technical Note was prepared by IMF staff in the context of the Financial Sector Assessment Program that visited Finland in March 23-April 13, 2022. It contains technical analysis and detailed information underpinning the FSAP’s findings and recommendations. Further information on the FSAP can be found at http://www.imf.org/external/np/fsap/fssa.aspx
Contents
Glossary
EXECUTIVE SUMMARY
INTRODUCTION
THE NBFI SECTOR IN FINLAND
A. Approach to Regulation and Supervision
B. Regulation and Supervision of Pensions and Insurance
C. Regulation and Supervision of Investment Funds
RISKS TO THE NBFI SECTOR
A. Macroprudential Policy and NBFI
B. Regulation and Supervision
C. Other Risks and Vulnerabilities
THE PENSION INSURANCE COMPANIES
A. The Role of the PICs in the Finnish Pension System
B. The Pension Insurance Company Market
C. Legislation, Regulation, and the Impact of Solvency Rules
PENSION INSURANCE INVESTMENT STRATEGY
A. Home Bias and International Return Comparisons
B. PIC Equity Investment: Cyclicality and Correlation
C. Alternative Approaches to Long-Run Defined Benefit Liabilities
FIGURES
1. Insurance and Pension Asset Allocation 2013–22
2. Supervisory Process and Quarterly Heat Map
3. The Finnish Pension System
4. PIC Asset Allocation and Asset Returns
5. Correlation Matrix for Risk-Based Capital
6. Investment Allocation of PICs Compared to Other Pension Funds 2012–22
7. Investments by Country 2012–22
8. Exposure and Return: Listed Equities 2010–22
9. Pairwise Correlation in Equity Investment
10. Cyclicality of Equity Investment
11. Comparison of Fund Returns: Finland and New Zealand
TABLES
1. Recommendations on Non-Bank Financial Intermediation
2. Size of the Financial System Including NBFI, end-2021
3. Location of Investment Fund Investments, end December 2021
4. Unit Linked Business 2016–2021 As Percent of Total Solvency II Technical Provisions
5. Assets Under Management and relative size of PICs and public pension funds
6. Solvency Data on the Pension Insurance Companies, 2021
BOX
1. Risks in the Pension Sector—the Views of the Pension Insurance Companies
APPENDIX
I. Pandemic Measures by the Finnish Government
Glossary
| AIFMD | Alternative Investment Fund Managers Directive |
| AUM | Assets Under Management |
| BoF | Bank of Finland |
| DB | Defined Benefit |
| ECB | European Central Bank |
| EIOPA | European Insurance and Occupational Pensions Authority |
| ESMA | European Securities and Markets Authority |
| ESRB | European Systemic Risk Board |
| ETK | Finnish Centre for Pensions |
| EU | European Union |
| FIN-FSA | Finnish Financial Supervisory Authority |
| FSSA | Financial System Stability Assessment |
| FSAP | Financial Sector Assessment Program |
| GDP | Gross Domestic Product |
| GFC | Global Financial Crisis |
| IAIS | International Association of Insurance Supervisors |
| IDD | Insurance Distribution Directive (EU) |
| IMF | International Monetary Fund |
| IOPS | International Organization of Pension Supervisors |
| IOSCO | International Organization of Securities Commissions |
| JuEL | Public Sector Pensions Act |
| KELA | National Pension Administrator |
| KEVA | Local Government Pension Fund |
| MEL | Seafarer’s Pension Act |
| MiFID II | Markets in Financial Instruments II (EU) |
| MoF | Ministry of Finance |
| MoSAH | Ministry of Social Affairs and Health |
| MEL | Farmers’ Pension Act |
| NBFI | Non-Bank Financial Intermediation |
| OECD | Organization for Economic Cooperation and Development |
| PAYG | Pay As You Go |
| PIC | Pension Insurance Company |
| RVV | Financial Stability Authority |
| SFDR | Sustainable Finance Disclosure Regulation (EU) |
| TELA | The Finnish Pension Alliance |
| TyEL | Employees Pensions Act |
| UCITS | Undertakings for the Collective Investment in Transferable Securities (EU) |
| VER | State Pension (Buffer) Fund Finland |
| YEL | Self-Employed Persons’ Pension Act |