Order on the Basic Interest Rate for Life Insurance Companies

Order on the Basic Interest Rate for Life Insurance Companies 1)

Pursuant to Section 30, Paragraph 7, and Section 316, Paragraph 1, of Act No. 718 of 13 June 2023 on Insurance Undertakings, it is hereby prescribed:

Section 1. This Order applies to insurance companies conducting business covered by Annex 2 to the Act on Insurance Undertakings, and branches in this country of insurance companies authorized to conduct business covered by Annex 2 to the Act on Insurance Undertakings in a country outside the European Union, with which the Union has not concluded an agreement in the financial sector, subject to Paragraph 2.

Paragraph 2. The Order does not apply to insurance contracts where

1. the basis for calculating insurance premiums, surrender values, and free policy benefits includes the possibility of dividing the paid insurance premium into a part for which a guaranteed benefit accrues, and a part that goes to either the collective bonus potential or the individual bonus potential, and
2. the basis as a whole is based on prudent assumptions.

Basic Interest Rate

Section 2. The basic interest rate is the interest rate or rates used as the basis for calculating the premiums for an insurance contract. Upon entering into an insurance contract or changing it, the basic interest rate must be set prudently.

Paragraph 2. The basic interest rate must not exceed the maximum interest rate of 1.0% per annum, including any guaranteed cost and security margin contained in the basic interest rate, subject to Paragraph 3.

Paragraph 3. The Danish Financial Supervisory Authority may, in consultation with the competent supervisory authority in another member state, set a different maximum basic interest rate for insurance contracts entered into in a currency other than Danish kroner.

Section 3. An insurance contract must not prevent an insurance company from changing the basic interest rate for future premium increases, bonus allocations, etc., for a period longer than one year.

Exceptions to the Basic Interest Rate

Section 4. The provisions on the basic interest rate in Section 2 do not apply in the following cases:

1. When changing an insurance contract where the value of future premiums after deduction of labor market contributions is not increased.
2. When increasing the premium for an insurance contract entered into in an employment relationship, to the extent that the increase corresponds to a previous premium reduction and is caused by the policyholder increasing their employment or gaining employment again after having been part-time employed or unemployed.
3. When resuming premium payments for an insurance contract after it has been interrupted for no more than 1 year.
4. For insurance contracts for which the insurance company has not assumed an investment risk.
5. For deposit-paid insurance contracts with a term of up to 8 years.
6. For insurance contracts without entitlement to bonus.
7. For life annuities without surrender value, established for a maximum of 3 years.

Paragraph 2. In the cases mentioned in Paragraph 1, items 1-3, the basic interest rate must not exceed the greater of the previously used basic interest rate for the insurance contract and the maximum basic interest rate according to Section 2, Paragraph 2.

Dispensation Possibilities

Section 5. The Danish Financial Supervisory Authority may grant dispensation from Section 2, Paragraphs 1 and 2, in the following cases:

1. When transferring a life insurance portfolio from a Danish or Greenlandic company, including mergers or similar, in accordance with Sections 195 and 226 of the Act on Insurance Undertakings and Chapter 8 of the Act on Supervision of Corporate Pension Funds.
2. When transferring a life insurance portfolio from a foreign or Faroese company to an insurance company covered by Section 1, Paragraph 1, provided that the transfer is approved by a supervisory authority in the home country of the transferring company.
3. When continuing, changing, regulating, or similar for an existing insurance relationship, where the use of a higher basic interest rate has a negligible economic significance for the insurance company and is fair and prudent for each individual policyholder in the company.
4. When the insurance company is temporarily unable to comply with Section 2 for technical reasons.

Paragraph 2. In the cases mentioned in Paragraph 1, items 1-3, the Danish Financial Supervisory Authority cannot grant dispensation for the basic interest rate to exceed the greater of the basic interest rate previously used in the insurance contract and the maximum basic interest rate according to Section 2, Paragraph 2.

Paragraph 3. Dispensation according to Paragraph 1, item 3, to use a basic interest rate of 3% per annum presupposes that the total payments and bonus allocations within a financial year to insurance policies created under this provision do not exceed 2 per mille of the insurance company's total life insurance provisions. For higher or lower basic interest rates, a correspondingly lower or higher limit applies.

Section 6. The Danish Financial Supervisory Authority may grant dispensation from Section 3 for insurance contracts where commitments for insurance benefits are made based on future premium increases.

Paragraph 2. Dispensation according to Paragraph 1 presupposes that the increases at the time of entering into the insurance contract are specified with regard to both timing and size, so that the commitment for insurance benefits has real content at the time of entering into the contract.

Penalties

Section 7. Insurance companies covered by Section 1, Paragraph 1, may be fined for violating Section 2, Paragraph 2, Section 3, and Section 4, Paragraph 2.

Paragraph 2. Companies and other entities (legal persons) may be subject to criminal liability according to the rules in Chapter 5 of the Penal Code.

Entry into Force

Section 8. This Order enters into force on 1 January 2025.

Paragraph 2. Order No. 667 of 1 June 2023 on the basic interest rate for life insurance companies is repealed.

The Danish Financial Supervisory Authority, 5 December 2024 Louise Mogensen / Line Bergmann

5 December 2024. 2 No. 1423.

1. The Order contains provisions implementing parts of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), OJ EU 2009, No. L 335, p. 1, as amended by Directive 2014/51/EU of the European Parliament and of the Council of 16 April 2014 amending Directives 2003/71/EC and 2009/138/EC and Regulation (EC) No 1060/2009, (EU) No 1094/2010 and (EU) No 1095/2010 as regards the powers conferred on the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority) (Omnibus II), OJ EU 2014, No. L 153, p. 1. Act Series A 2024 Published on 10 December 2024 5 December 2024. No. 1423. Ministry of Industry, Business and Financial Affairs, Danish Financial Supervisory Authority, file no. 24-019095 CQ003057