Danish pension provider, PFA, has received several orders from the Danish Financial Supervisory Authority (FSA) following an inspection.

The inspection took place between October and December 2020 and included the management and organisation, investments, risk management, solvency, insurance business and outsourcing. As a result of the orders, within the next three months, PFA is required to prepare a statement and documentation of how it is complying with the FSA’s orders.

At the end of 2020, PFA had 1.3 million customers and provisions for insurance and investment contracts for approximately DKK 553bn, one of Denmark's largest market-oriented life insurance companies.

The company offers pension schemes to both private and corporate customers. The company's business is moving from average interest rate products to market interest rate products. Payments at market interest rates in 2020 accounted for the vast majority of total payments.

The most important associated company in the group is PFA Pension, which accounts for 96 per cent of the group's consolidated balance sheet. In addition to PFA Pension, the group has PFA Bank, PFA Kapitalforening, PFA Asset Management and several real estate companies.

In regard to the business model, the FSA found that PFA had initiated several large projects of great importance to the business, of which, organisations and governance had been set up for.

“The Danish FSA assessed that the projects as a whole constituted a significant draw on PFA Pension's resources, and that the projects posed a risk to the company's business model if they were not implemented successfully,” the FSA noted.

In relation to policy and guidelines, PFA has been instructed to ensure that the value of its registered assets corresponds, at all times, to the technical provisions and to ensure that relevant guidelines and business procedures contribute to this. In addition, the company has been instructed to ensure that a disproportionately large sector or country exposure cannot arise for the offered market interest rate products.

The Danish FSA has also instructed the company to ensure that the policy for insurance risks contains general instructions on the desired or acceptable level of risk overall.

PFA was also criticised for its board minutes as the FSA found that in several of the negotiation minutes it appears that there have been discussions on a point at PFA Holding and PFA Pension's board meeting, but the negotiation minutes do not reflect the discussions that have taken place.

The company has therefore been instructed to keep the minutes of the board of directors so that the discussions are reflected in the minutes of the board of directors at all times.

Furthermore, the company has been criticised as its compliance plan did not take into account all relevant areas and the areas' exposure to compliance risks.

“The Danish FSA found that the deadlines for established breaches of the rules were postponed without it being clear from the compliance report when the deadlines had been moved and how many times they had been moved. On that basis, the company has been ordered that reporting to the board of directors must be adequate,” the FSA stated.

PFA has also been reprimanded for not using accurate data to calculate the technical provisions for loss of earning capacity products. The company has also been ordered to expand the documentation in the notified technical basis with regard to the reasonableness considerations that are included in the calculation of the risk return.

In addition, in relation to a very limited part of the company's total insurance portfolio, the company has been ordered to use mortality assumptions, which are reassuring for all ages in connection with the purchase of new services.

In regard to risk management, the company has been ordered to ensure that its solvency capital requirements are calculated using the methods specified in the legislation. However, the order did not have a significant effect on PFA Pension's total solvency capital requirements.

In response, PFA group CEO, Mads Kaagaard, said: “We have had a constructive dialogue with the Danish Financial Supervisory Authority, and it is clear to us in which areas they want adjustments. We are thus already in place or in the process of the stated conditions. It is important to us that we live up to the legislation and that there is trust in PFA with both customers and authorities. That is why we have also had full focus on following up on the Danish FSA's inspection.”

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