A Study of the IORP and the Traffic Light System in Sweden

Abstract: We analyze the implications of the implementation of the IORP and the traffic light system in Sweden. Our aim is to provide an introduction to the effects on the life- and pension insurance institutions that provide occupational pension insurances as well as introduce any fundamental market effects resulting from these regulatory changes. We find that the new regulatory framework has altered the investment behaviour of less solvent life- and pension insurance institutions. Furthermore, we find support for an increased alignment of the investment portfolios among the very same institutions. However, we can not establish any solid proof that the IORP and the traffic light system generally have had a considerable impact on the life- and pension insurance institution’s product portfolios nor could we establish a significant trend towards increased market segregation as a consequence of the new regulatory framework. Finally, we find evidence that the low supply of long term nominal government bonds poses a sincere predicament to the life- and pension institutions independently of solvency level.