Pandemic Response, Asset Allocation, ESG and Solvency II

Insights into Investments amongst Nordic Insurance Companies, 2021

2020 brought unparalleled disruption and historical change to the world and the global economy. Insurers face a number of challenges; matching future liabilities in a low yield environment, increased regulatory reporting requirements and alignment of portfolios to meet ESG standards to name a few. The pandemic brought additional pressure and put organisational structures to the test

The Nordic Insurance Industry Report 2021 aims to highlight the questions that key asset allocation decision-makers among Nordic Insurance companies are facing in a world still affected by the global pandemic.


“We are proud to present our first Annual Nordic Insurance Industry Report, which compiles answers from investors across the Nordics. The responses we have received provide valuable insight into the Nordic investor sentiment and we would like to thank all the investors that have participated. We would also like to thank the team at Aegon Asset Management who have provided us with support for this project.”

– Jonas Wäingelin, Editor in Chief, NordicInvestor

“We are pleased to share this report with you as part of our ongoing commitment to the Nordic insurance market. It is our belief that in fully understanding the ever changing challenges faced that we can better support you in bringing fresh ideas and solutions to the market that meet your needs. We very much appreciate the response we have had from over 25 CIOs from leading insurance companies and we are delighted to be able to share their thoughts and findings with you. Enjoy reading this survey.”

– Frank Drukker & Jeroen van Wilgenburg, Aegon Asset Management

NordicInvestor has in 2021 interviewed chief investment officers and other senior investment professionals at over 25 life and non-life insurance companies in Sweden, Denmark, Finland and Norway, which together manage over EUR 500 billion.

A list of those participating with attribution appears below (some other companies that also participated anonymously feed into our general conclusions, but we have not quoted them).

Akademiker Pension
Storebrand Asset Management
PRI Pensiongaranti
SEB Life and Pensions
AFA Forsakring
Skandia Life

Here we highlight some of the key insights into remote working; managing volatility; strategic and tactical asset allocation, rapidly evolving ESG ambitions, and hopes for reforms to Solvency II.

ESG remains the most commonly mentioned top three priority highlighted.

Biggest challenges facing Investors


The Pandemic: Remote Working, Volatility and New Manager Engagement

The insurance industry will likely have more remote and home working in future, but also looks forward to returning to the office for spontaneous and creative team communication – and travelling for on-site due diligence with asset managers.

The market volatility in the spring of 2020 put models and processes to the test but did not lead to significant changes in the strategic asset allocation of investors.

Governance of externally managed strategies was successfully adapted to new circumstances but due diligence in general, and the amount of engagement with new managers in particular, often suffered.

Asset Allocation in a Low Yield, High Valuation Environment

Insurers have to keep some assets in low, zero and negative yielding fixed income for risk and liquidity reasons, but have for many years been moving assets into equities, higher yielding paper, alternatives, and illiquids to pick up yield and returns. But there are also concerns about valuations in alternatives, such as infrastructure and green assets. Some insurers are now preparing portfolios for scenarios of higher interest rates or inflation or both while others are relaxed about these risks.

Some insurers are already reducing equity risk while others will not derisk portfolios until they see central bank support being withdrawn. Though insurers are seeking yield pickup, they are aware of rising default risks and are emphasizing higher quality paper.

Most insurers accept negative yields on cash for liquidity purposes and will not take credit or duration risk with this allocation.

Management Styles

Active management is used for all alternatives and most fixed income. Equities are more mixed with ESG indices a growing trend on the passive side.

In house management is most often used for strategic and tactical asset allocation, asset/liability management and manager selection. Local fixed income and equities are most likely to be managed internally.

ESG Priorities and Ambitions

Preparing for EU rules on SFDR and Taxonomy is one ESG priority. Climate change is the other, though this is also broadening out to biodiversity.

ESG policies are most advanced for equities and corporate bonds. For sovereign debt ESG only applies to emerging markets, where some insurers are excluding a number of countries. ESG may not apply to some legacy private equity investments, and ESG policies cannot always be precisely applied to external managers.

There are concerns about data gaps in alternatives, with the exception of directly owned real estate. Some allocators may need to negotiate disclosures. Carbon reporting is itself evolving from backward looking data into forward looking targets. UN SDG reporting varies in terms of which SDGs are prioritized.

Some insurers have set targets for green investments on both the liquid and illiquid side. Beyond green bonds more attention is being paid to social bonds and sustainability bonds.

Solvency II Reforms

Many insurers perceive Solvency II as short term in focus and encouraging credit and interest rate risk. They would welcome a longer-term approach giving more flexibility to invest in equities and alternatives including infrastructure.

Solvency II rules may not leave enough freedom for some insurers’ ESG ambitions.

1. The Pandemic: Remote Working, Volatility and New Manager Engagement

The pandemic not only introduced a new market regime forcing Nordic insurance industry allocators to review portfolio risk levels on the back of heightened market volatility but also introduced organizational challenges to cope with the work from home environment.

Naturally, large insurance companies had enough internet bandwidth, remote working and collaboration tools, including digital platforms, to function more or less normally while working from home, but this brought both benefits and costs.

The benefits of remote working in terms of saving on travelling time, flexible working hours, and team collaboration across locations, are well understood, since it was not entirely a new phenomenon for some firms anyway. Staff remained highly motivated, and formal meeting schedules continued, sometimes even more frequently. They also continued to remotely participate in industry conferences, which gathered some intelligence, but did miss out on informal networking and gossip.

We have a very broad access to interesting topics and speakers working from a distance even without physical meetings — Johan Held, Chief Investment Officer, AFA Försäkring

Working from home challenges

Yet there were also business efficiency drawbacks as a result of the work from home environment such as lack of spontaneous and creative communication and thinking, exchanging ideas over coffee machines and water coolers, and team integration. This might in some cases have slowed down some longer-term projects, according to the respondents

“The biggest disadvantage is that it has been harder to integrate new team members, and get a team working feeling in terms of wider group dynamics,” – Pontus Bergekrans, Group Chief Investment Officer, SEB Life and Pensions.

There were also social and human drawbacks in some cases given the need for humans, as social animals, to interact physically. Most people are looking forward to returning to the office, for at least part of the week, and travelling for on-site meetings and due diligence.

“Equally, we do not underestimate the personal costs for employees and their families. Many may experience some sense of isolation and several employees do not have enough space for their family and children at home,” – Jan Erik Saugestad, CEO, Storebrand Asset Management.

Managing volatility

Though the March 2020 equity market crash was the fastest for decades, governance frameworks were able to handle the volatility.

The market volatility due to the pandemic was of course extreme but we have seen very volatile markets earlier, for instance the events in 2008 during the GFC. Our processes are set up to be able to handle even extreme markets, — Johann Guggi, CIO Asset Allocation, Handelsbanken Asset Management

Sometimes asset owners introduced more frequent meetings, and small changes to allow for remote decision making. Some operational frameworks have also been enhanced: including Value at Risk (VAR) models for collateral and liquidity management, routines for shifting collateral and margin between counterparties, and valuation of illiquids.

“Market volatility stress tested our valuation models on unlisted investments, which led to some changes in the model and sharpened up our governance procedures. We have started making monthly price adjustments to our unlisted portfolio, based on historical data and back-testing, using indicators from listed markets,” – Anders Schelde, Chief Investment Officer, AkademikerPension.

Due diligence and new managers

Due diligence in general, and the amount of engagement with new managers in particular, often suffered as allocators could not see the full picture and found it harder to form a qualitative assessment of some softer criteria, such as managers’ personal and social qualities.

“Remote due diligence does miss out on the face to face human contact of meeting managers, which is important to develop understanding of elements beyond quantitative numbers, such as whether they are good custodians of capital,” – Thor Abrahamsen, Senior Investment Risk Analyst, Gard.

Some firms, such as Gjensidige and AFA Forsakring, have a hard requirement to make physical visits before investing while others, such as PRI Pensionsgaranti, were able to make use of outsourced due diligence, which was itself carried out remotely in many cases.

Focus: Administration and fund on-boarding - lack of digitalised procedures

The fact that fund subscriptions still involve manual processes caused some delays, particularly for private equity allocations.

“The industry was also not prepared for remote working in terms of paperwork for KYC or subscribing to new funds. This often still requires physical signatures on subscription documents, KYC forms, and tax forms, which sometimes even need to be faxed to administrators. Some firms are now accepting digital signatures,” – Peter Ragnarsson, Head of Alternative Investments, PRI Pensionsgaranti.

Digitisation is indeed a growing trend with that has been accelerated by the pandemic.

2. Strategic and Tactical Asset Allocation in a Low Yield, High Valuation Environment

A world of very low, zero and negative interest is not a new phenomenon – in Europe it has been the case for 10 years. What has changed recently is above average valuations across all asset classes, which leads insurers to fear that future returns will be lower. There are also concerns about how to maintain portfolio diversification, and specifically whether government bonds will act as diversifiers for risk assets.

The most common multi-year trend among Nordic institutions was identified within the liquid credit universe with shifts from lower yielding government and investment grade debt to higher yielding corporate bonds and emerging market debt, both sovereign and corporate.

“The fact that we are in a broad recovery, with low levels of default risk, makes it reasonable to have a tilt towards corporate bonds. In other words, aiming for the higher yielding part of the fixed income space,” – Stefan Klohammar, Investment Director, Movestic

Many insurers have also moved assets from liquid fixed income, into equities, and various illiquid and alternative asset classes, including private debt, infrastructure debt, infrastructure equity, private equity and real estate. These are designed partly to pick up illiquidity premia. Percentage allocations to alternatives range from about 12% to 40%, and can vary between portfolios within the same company. Some firms have doubled their alternatives allocation over the past few years.

“We believe that private equity will perform better than listed equities. We also think that this is the area where the most exciting investments are being done in terms of funding companies that are doing new things,” – Lars-Göran Orrevall, Chief Investment Officer, Skandia Life

Allocations to Alternatives as % of AUM

Focus: Bubbles in Infrastructure and Sustainable Investment Valuations?

Though the main motivation is higher returns, ESG is sometimes also a driver for growing the alternatives bucket of portfolio allocations. But some Nordic Insurance companies fear bubble valuations in infrastructure and sustainability-linked Investments:

“We are somewhat increasing private equity, venture capital, infrastructure, distressed debt and real estate, especially assets and managers with a clear sustainability angle…”Pontus Bergekrans, Group Chief Investment Officer, SEB Life and Pensions.

However, some allocators are becoming concerned about valuations of ESG friendly alternatives, particularly for low risk and more mature assets.

“We do not actually have any infrastructure at the moment because we find the returns are too low for the risks involved. A big Norwegian pension fund has bought offshore wind farms in the Netherlands on an expected return of 1-2%. This is clearly higher than government bonds but is not an attractive option for us,” – Erik Ranberg, Chief Investment Officer, Gjensidige.

”We see high valuations within alternatives and sustainability, however we still find these assets attractive in a long term perspective,” – Fredrik Ehn, Chief Investment Officer, SPP.

Interest Rate Exposure remains high
The shift into alternatives and illiquids should not be exaggerated however. Most insurers still own fixed income and many insurers still have the majority of their assets in fixed income, and some cash, for regulatory liquidity and solvency reasons.

We are now pretty indifferent to yield changes, since we have used ALM to match all liabilities, almost fully hedging our interest rate risk and liability return requirements. — Timo Salminen, Head of Capital Management, Fennia

Some investors are now contemplating higher interest rates, prompting shifts to shorter duration exposures.

“As interest rates have continued to decline over many years we have shortened the duration of our fixed income portfolio, from about 4 to 2 years, as we do not see interest rates falling any further from here. Hence with a longer duration on our liabilities than our fixed income portfolio we are positioned for increasing interest rates,” – Johan Held, Chief Investment Officer, AFA Försäkring.

Inflation not deemed critical for most
Inflation is also a possible concern, at least in the short-term, for some, but it is far from translating into widespread inflation protection strategies being implemented:

“The main change in 2020 was adding commodities as an extra hedge for inflation risk” – Erik Ranberg, Chief Investment Officer, Gjensidige.

As Euro currency investors, we are prepared for a small increase in interest rates, some yield curve steepening, and inflation. Our inflation hedges include real estate, infrastructure and equities. But we still have a modest outlook for growth and inflation for coming years, — Tomi Viia, Chief Investment Officer, OP Financial Group

A handful of other allocators are not concerned about inflation.

Inflationary Risks

Mixed Opinions on Equities
In 2020, some investors took advantage of the sell-off. Akademiker Pension made just two tactical trades in the first quarter of 2020, reducing exposure before the March 2020 crash and adding it afterwards. In May 2021, opinions were more mixed. Some asset owners are still increasing equities while a few other investors are starting to become concerned about equity valuations.

“We also see increased risk to current equity valuations in the rising yield environment and have started to buy out-of-money equity put option cover for the Q4,” – Timo Salminen, Head of Capital Management, Fennia.

In contrast, some investors await less friendly monetary policy before reducing risk:

We will not be looking to lower the overall risk until we see clear signs of tapering or withdrawing of support from central bankers. — Lars-Göran Orrevall, Chief Investment Officer, Skandia Life

Credit quality being prioritized
The outlook for credit risk is generally sanguine, but some insurers are sensitive to rising defaults, which they were actually expecting before the Coronavirus crisis simply because the cycle had gone on for a long time. Some of them are reducing allocations to lower yielding papers; many are more defensively emphasizing higher quality credit, or avoiding companies without a credit rating, while others, such as SEB Life and Pensions, are more offensively seeking opportunities in distressed debt.

“We do not believe corporate credit with very low yields is paying us for default risk,” – Thor Abrahamsen, Senior Investment Risk Analyst, Gard.

There will be defaults at some point, we have to take some risk for the additional return, but still expect to beat government debt over time. Our alternative fixed income assets have a higher credit risk on average than our more traditional fixed income assets — Fredrik Ehn, Chief Investment Officer, SPP

Focus on Liquidity and Cash Management: Living with Negative Rates

The majority of asset owners have to live with negative interest rates on cash, at least when depositing larger sums with larger banks. There are two main exceptions: in Norway, rates are still positive, and at least two insurers are able to get zero interest rates on bank deposits: Pohjantähti in Finland and PRI Pensionsgaranti in Sweden. Insurers do not want to take duration risk or credit risk with assets that are required for liquidity purposes. They are instead seeking yield enhancement from alternatives.

3. Styles of Management: Active versus Passive, In House versus External

Most asset owners use a mix of active and passive management, but several asset owners we interviewed, such as PRI Pensionsgaranti, are 100% active. Some may use 100% active management for strategic asset allocation – but still use passive instruments such as ETFs for tactical asset allocation.

In strategic asset allocation, there is usually some mix between active and passive management. Alternatives are always actively managed and so is the great majority of fixed income. Only two insurers mentioned using indices for part of their fixed income exposures.

All our assets are actively managed but to some extent it becomes a question of semantics. Some strategies use what you may call an enhanced index, but they are actively managed none the less. — Michael Kjeller, Chief Investment Officer, Folksam

Equities are where there is most likely to be passive management. It is most often seen in large cap or all cap or large cap US or European equities, with active management more often used for Nordic equities, small caps, Asia and emerging markets. AFA Försäkring seems to be relatively unusual in running Asia and Japanese equities passively. The mix can of course change over time: AFA has recently increased its proportion of active management in emerging market equities.

“In our listed strategies we are active through the selection of our benchmark. For instance, our equity benchmark is now MSCI Climate Change index. Part of the portfolio has a tracking error around 1% to seek some alpha,” – Claus Jørgensen, Chief Investment Officer, Pensam

Fennia has a flexible approach to the active versus passive split, monitoring information ratios to measure the benefit of active management.

Some asset owners are using various sustainable/ESG equity indices, both from major global asset managers and from Nordic asset managers. For instance, Denmark’s PENSAM uses MSCI Climate Change index as its equity benchmark.

Focus: ESG, Active Management and Engagement

There is a widespread perception that ESG equity strategies need to be actively managed, to monitor change and enable corporate engagement. Engagement is generally done directly for local equity markets. Internationally, engagement tends to be a collaborative effort, but at least three allocators engaging directly with companies outside their home country are Storebrand Asset Management in Norway, Akademiker Pension in Denmark, and FOLKSAM in Sweden. FOLKSAM’s engagement with UK banks, Barclays and HSBC, contributed to them changing their stance on lending to fossil fuel firms while its work with Amazon focused on the right of employees to join trade unions.

In House versus External Management
Strategic asset allocation and manager selection is nearly always done in house, as is tactical asset allocation, and asset/liability management, including interest rate derivatives and overlays. This is not being outsourced to investment consultants or other consultants (though they may assist with some aspects of Solvency II modelling).

Local bond or equity portfolios or both are most likely to be managed in house, including local government, municipal, covered and mortgage bonds, and local real estate is often managed internally, usually in a dedicated corporate structure.

Passive equity management is generally external, but Storebrand Asset Management and Skandia Life are two examples of asset owners that have developed their own sustainable equity indices (Skandia also uses an external provider for ESG indices in emerging markets equities).

Alternatives are nearly always managed externally, though there are some joint ventures in the infrastructure space such as that amongst Pensam and PKA, which Storebrand Asset Management has recently joined.

Only one asset owner we interviewed – Akademiker Pension – is potentially insourcing more asset management.

4. ESG Priorities, Ambitions, Asset Class Coverage, Data and Reporting

“Sustainability could be the new lower for longer trend. Sustainability is one of our biggest challenges, both in terms of fulfilling new regulations and investing in the right places to connect to the trends,” – Pontus Bergekrans, Group Chief Investment Officer, SEB Life and Pensions.

% Highlighting ESG Priority

The Nordics were some of the earliest movers on ESG but they still face some challenges in meeting new EU regulations, which many highlighted amongst their top three challenges. The most common short-term ambition is simply preparing for new EU regulations such as the SFDR (Sustainable Finance Disclosure Requirement) and the EU taxonomy. (Some firms, such as pension insurers and providers of workplace insurance which do not distribute products as such, are not actually sure if these rules apply to them, or are awaiting guidance, but they still want to keep abreast of these developments and sometimes be aligned with them).

Both the SFDR and the taxonomy are still at an early stage with many areas remaining to be clarified. Some asset owners are expecting to allocate mainly to ‘article 8’ (“light green”) or ‘article 9’ (“dark green”) funds under SFDR, while others keep an open mind about also being invested in ‘article 6’. Some are not yet sure how all of their external funds will be classified. The first versions of the EU taxonomy are often seen as rather narrow in sector coverage, but of course the taxonomy is expected to be broadened out over the coming years, so in many cases it is probably too early to be confident about determining which strategies will fit into it.

My hope was that the regulations would minimise green washing. But when 80 percent of Swedish funds are listed as category 8 or 9, I feel that they are rather toothless in that respect — Stefan Klohammar, Investment Director, Movestic

Focus: Biodiversity and Deforestation

In terms if bigger picture ideals, all asset owners are naturally making climate a priority, and some, such as ELO and Storebrand are also paying attention to other topics such as deforestation and biodiversity.

“Climate is increasingly well understood, but we do not see enough attention paid to nature and biodiversity risks. We have taken a lead role on deforestation, co-chairing a group to focus on Brazil and deforestation risk in other countries as well,” – Jan Erik Saugestad, CEO, Storebrand Asset Management.

Asset class and mandate coverage

The aspiration is nearly always to apply ESG across all asset classes, but in practice it is not always seen as immediately practical for all of them. ESG might not apply to some historical or “legacy” private equity investments.

The general consensus is that ESG is most developed for equities and corporate bonds. On the illiquid and impact investing side, asset owners have most confidence about their ESG policies in relation to real estate, where they have direct ownership and control.

Our processes and practices are most advanced in direct equity and corporate bond investments. — Katja Einesalo, Director, Responsible Investments, ELO

ESG has sometimes ruled out entire asset classes. Skandia Life is winding down its commodities program because the commodities with the greatest diversification benefit – fossil fuels – are at odds with the ParisAgreement.

Sovereign Debt
The general perception is that ESG could apply to emerging market sovereign debt, where some sovereigns have low ESG scores, but not developed market sovereign debt – or interest rate derivatives.

The largest number of excluded countries we identified was 45:

“In sovereign debt we also exclude 45 countries, and exclude state-controlled companies in those countries. We mainly look a number of quantitative indicators of human rights, and we look both at the level and direction of these indicators as well as a host of more qualitative inputs. Exclusions include Saudi Arabia, China and Belarus, and we have now started using our own benchmarks in the EMD space because with have excluded several of the large issuers in the mainstream benchmark,” – Anders Schelde, Chief Investment Officer, Akademiker Pension.

External Managers
Some asset owners such as PKA provide their external managers with a quarterly exclusion list, but of course exclusions or negative screening is nowadays only a small part of ESG policies. Most asset owners expect their external managers’ ESG policies to be broadly aligned with their own, but recognise that it is not realistic to expect other firms to have exactly the same policies or apply them in precisely the same way.

Benchmarking is an area where practices vary. Some insurers, such as Topdanmark, currently use standard equity benchmarks such as MSCI Developed world. Others, such as AP, have already developed ESG benchmarks, and others, such as AFA, are considering introducing ESG or sustainability adjusted benchmarks.

ESG Data and Reporting

ESG policies are not applied uniformly across asset classes partly due to gaps in data, such as carbon data. Carbon and other data reporting is generally best for equities, though one asset owner, Handeslbaken, identified weaknesses with smaller companies’ data because they do not have dedicated people working on ESG reporting.

Focus: Alternatives and Data Gaps

Data can be lacking for many areas of alternatives, with the exception of real estate.

Clearly in recent years the limited data on alternatives has not prevented asset owners from increasingly their allocations, but that may change in future as various regulations impose stricter reporting needs. Limited disclosure or reporting may in future lead asset owners to negotiate the required reporting when they make investments:

“Depending on future reporting requirements, we might need more transparency from our external funds in the future, probably agreed on through side letters,” – Peter Ragnarsson, Head of Alternative Investments, PRI Pensionsgaranti.

Real Estate
Real estate is not only ideally suited to precise measurement of carbon but also to improvements in its efficiency. Asset owners with direct ownership have much more control.

“ESG has most impact in real estate, where we can have an immediate and tangible effect on energy efficiency. Our biggest investment is an office in Helsinki used by Danske Bank. It has a LEED (Leadership in Energy and Environmental Design) GOLD certification and was awarded the highest score for any property on sustainability in Finland,” – Timo Salminen, Head of Capital Management, Fennia.

Improving carbon and climate reporting and targeting
Carbon reporting itself is being developed, particularly in relation to improving the quality of scope 3 data. Many asset owners are introducing TCFD reporting this year – or enhancing their existing TCFD Reporting. For instance:

“We made some additions in our TCFD reporting this year – for example we started to report the contribution of our equity and corporate bond investments to the weighted average carbon intensity, the assessment of the readiness for transition of our equity investments and the weight of equity and corporate bond investments that produce clean technology solutions”, – Katja Einesalo, Director, Responsible Investments, ELO

Carbon reporting also feeds into forward looking targets for reducing emissions, with 2025 marking key milestones along the road to expected neutrality in 2050, based on the science-based climate scenarios such as the IPCC 1.5 degree scenario for future temperature rises. For example Academiker Pension has set a target for reducing our 2019 emissions by 27% by 2025, and Storebrand has set a target for carbon emissions in 2025 to be 32% lower than in 2018.

“We have reported Scope 1 and 2 emissions, and will start TCFD reporting this year. We are starting to model forward-looking climate risk and Climate VAR,” – Mikael Bek, Head of ESG, Pensam

Allocators are exploring approaches to calculating climate Value at Risk (VaR) in most cases initially for internal reporting purposes. They are not always ready to start reporting it externally, partly because they need to get comfortable with multiple assumptions underlying the calculations.

Some asset owners want to go beyond reporting on carbon and start trading it:

We would like to see a market-based system of trading carbon credits developing further so that financial institutions can participate, — Erik Ranberg, Chief Investment Officer, Gjensidige.

UN SDG Reporting
Some asset owners are also prioritising certain UN Sustainable Development Goals. For instance, PRI Pensionsgaranti’s inaugural Sustainailty report highlights 6 of the 17 UN Sustainable Development Goals (3,4,5,8,9 and 12) as areas of focus. Gjensidige has chosen some of the same SDGs, but also some different ones. They are: 3 – Good Health and Well-being; 8 – Decent Work and Economic Growth; 11 – Sustainable Cities and Communities; 12 – Responsible Consumption and Production, and 13 – Climate Action.

Use of UN SDG´s to Measure Impact

ESG Impact Investing

The SDGs are one framework for measuring impact investing. Some asset owners group impact under the general heading of sustainability while others have created a segment for it. Many insurers are exposed to “green bonds” but they do not always have a specific target for these and other impact allocations.

“In general terms we will increase investments even more in areas that is attributing to the SDGs and mitigating climate change. Long term we see that investments in areas that are addressed in the SDGs have a fundamental support that will benefit the returns.” – Johann Guggi, CIO Asset Allocation, Handelsbanken Asset Management

The chart below is a snapshot at a point in time and may quickly become out of date since many firms are reviewing their ESG policies and might soon introduce targets.

Green Investment Ambitions

Focus: percentage targets for Green and solutions-oriented allocations

Here are examples of targets.

“By 2030, we plan to invest at least 6% in “green investments” in the listed space in line with the EU taxonomy, and another 6% in infrastructure that is directly related to the green transition” – Anders Schelde, Chief Investment Officer, Akademiker Pension.

“PKA has met its target of 10% of assets in green investments by 2020, having already invested DKK 33 billion in green assets. Longer term, the target is now DKK 50 billion by 2025. We also invest in green bonds,” – Louise Aagaard, ESG Manager, PKA.

“Topdanmark itself has a target of 20% of all pension assets in green or green transformation equities by 2030” – Topdanmark’s Portfolio Manager, Andreas Stang who is responsible for the ESG strategy.

“Green bonds are a fast growing asset class but attention is also being paid to social bonds, because ESG covers Social as well as Environmental performance. PKA also is a target to invest 10 billion in social assets by 2025” – Louise Aagaard, ESG Manager, PKA.

Beyond green bonds, sustainability linked bonds have a wide range of targets: ”What we see now as an exciting opportunity is sustainability linked bonds with clear KPIs” – Lars-Göran Orrevall, Chief Investment Officer, Skandia Life

In terms of positive solutions, assets in solutions are 9.6% of the total as of end 2020 for Storebrand Asset Management. “Over the years we spend more and more resources in finding sustainable solutions – investing in companies that are relevant to climate change, sustainable infrastructure and cities, the circular economy and empowerment and social inclusion” – Jan Erik Saugestad, CEO, Storebrand Asset Management.

5. Regulatory Developments: Solvency II and Accounting Standards

Some allocators have no real opinion on Solvency II or are reasonably happy with the framework. For instance,

“As with any framework of rules you can always have opinions but I think that the Solvency 2 framework, as a whole, is actually quite well thought out” – Michael Kjeller, Chief Investment Officer, Folksam

Solvency II

Solvency II reforms are often seen as a slow moving process, but the sense of urgency is heightened by both ESG concerns and the search for yield and return in alternatives. Here we highlight the views of some of those who expressed a strong opinion.

Solvency II and ESG
A number of asset owners have expressed concern that Solvency II framework could conflict with and hold back their ESG ambitions. There is no suggestion that regulators want to hamper ESG, but the unintended consequences of reporting requirements could be one example of how regulations pose obstacles to ESG.

One concern is simply cumbersome reporting requirements that create a bureaucratic obstacle.

It is also difficult to provide look through reporting for assets such as infrastructure and private equity, which can be very strong on ESG as well as impact. — Pontus Bergekrans, Group Chief Investment Officer, SEB Life and Pensions

Another concern is the risk weightings applying to alternatives. Positive incentives could be one way to make Solvency II more ESG friendly through preferential treatment for sustainable investments.

Solvency II Reforms
Apart from ESG, there are many other hopes for changes to Solvency II as part of the 2020 Review, mainly to allow more flexibility and freedom to invest in asset classes and strategies with higher expected returns

Standardisation versus customization
The great majority of insurers in the Nordics use the standard Solvency II model. In Finland, all insurers use the standard model. In Denmark only one non-life insurer has a full internal model while three have partial internal models. Amongst life insurers, four have partial internal models for longevity modelling. In Sweden, five insurance companies use a partial internal model. In Norway only two – Gard and Gjensidige – have developed internal models and both of them still find that the rules are not flexible enough.

“Solvency II may also be too standardised in applying to insurers with very different balance sheets,” – Thor Abrahamsen, Senior Investment Risk Analyst, Gard.

“We are disappointed that the regulator requires extra capital buffers for our model beyond what we think are necessary,” – Erik Ranberg, Chief Investment Officer, Gjensidige.

Gard’s internal model often result in higher capital requirements than the standard model, but this is not actually a concern.

Short term versus long term
Several insurers argue that the Solvency II rules are too short term, which also encourages more fixed income and discourages equities and alternatives.

Solvency II is very much focused on the short term in applying the same stress tests to shorter term and longer term assets. We would like to invest surplus capital in longer term strategies, for example private debt and infrastructure, — Thor Abrahamsen, Senior Investment Risk Analyst, Gard

“Solvency II capital charges are disproportionate and too short term. They are too low on low risk fixed income (basically zero for government bonds) and too high on higher returning assets, such as equities, or alternatives, such as infrastructure and private equity. These assets are more sensible for a long term investor over 5 years, and the charges should be lower for longer holding periods,” says Mikael Nyberg, Head of Fixed Income, SEB Life and Pensions.

Equities and alternatives

Many asset owners would welcome more flexibility on alternatives or equities or both.

Solvency II should leave more freedom for alternative investments, which provide an important diversification in a portfolio — Jan Erik Saugestad, CEO, Storebrand Asset Management

“Private equity and hedge fund allocations have gone down, due to Solvency II capital requirements. Luckily coming changes in Solvency II will make it less capital intensive on the long term investing in Equities,” – Tomi Viia, Chief Investment Officer, OP Financial Group.

“We do not understand why equities have such a high capital charge and automatic allocation mechanism,” – Erik Ranberg, Chief Investment Officer, Gjensidige.

Interest rate and credit risk
Solvency II has made changes to recognise negative interest rates, but there are still concerns that it pushes insurers into larger bond and credit allocations than they would otherwise choose.

“Solvency II rules on interest rate and credit risk were written years ago in a totally different environment when interest rates were 4-5%. Now the regulations are pushing us to take more credit risk. We would prefer to take more equity risk,” – Jani Partanen, Chief Investment Officer & CFO, Pohjantähti Keskinäinen Vakuutusyhtiö.

“Solvency II encourages us to take on more interest rate duration risk, but at very low interest rates, Solvency II does not capture the tail risks of holding government bonds,” – Thor Abrahamsen, Senior Investment Risk Analyst, Gard.

Focus: IFRS and ESG

Some insurers such as Skandia Life would like to see IFRS include non-financial reporting. Indeed, the IFRS Foundation has proposed a new Sustainability Standards Board to develop reporting standards including for climate.

IFRS and Valuations
Changes to IFRS are not relevant to many insurers using local accounting standards, and even those using IFRS do not seem to be worried about them: “We do not expect that IFRS 9 and 17 from 2023 will have much practical impact on our investment strategies. We will have to move from holding at amortised cost, to mark to market, which will change the value of assets but we already record the market values for our ALM (asset liability matching) so it is really just moving some line items around. We already use mark to market accounting in our Danish and Swedish companies” – Erik Ranberg, Chief Investment Officer, Gjensidige.

6. Contacts

If you have questions about this report please contact:

Jonas Wäingelin, Editor in Chief, NordicInvestor

Hamlin Lovell, Contributing Editor, NordicInvestor

For more content around and about the nordic asset management space, please visit our main site here


The information in this document has been compiled by NordicInvestor B.V. It is produced for private information of recipients and NordicInvestor is not soliciting any action based upon it. All information has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Recipients are urged to base any investment decisions upon such investigations as they deem necessarily. To the extent permitted by applicable law, no liability whatsoever is accepted for any direct or indirect loss arising from the use of this document or its content. Your attention is drawn to the fact that NordicInvestor, or any entity associated with NordicInvestor or its affiliates, officers, directors, employees or shareholders of such members may from time to time have holdings in the securities mentioned herein.

Confidentiality Notice

This report is confidential and may not be reproduced or redistributed to any person other than its recipient from the publisher. NordicInvestor B.V, 2021. All rights reserved.

In association with