Pension regulations in the Nordic countries and the Netherlands are similar to insurance regulation in the European Union. Solvency capital required for credit risk in corporate bond portfolios is close to its economic risk, while solvency capital for equity risk does not distinguish at all between low-risk and high-risk equity portfolios. This shortcoming in the regulation encourages risk-seeking behavior by pension funds and insurance companies in their equity portfolios, and may contribute to the existence of the low-risk anomaly documented in the equity literature. Solvency regulation does not seem to discourage allocating to low-risk corporate bonds. However, other market frictions may cause the anomaly to persist in corporate bond markets.

Insurance companies, Low-risk investing, Pension funds, Solvency regulation
Nordic Journal of Business
Tinbergen Institute

Houweling, P, & Swinkels, L.A.P. (2019). Pension and insurance solvency regulations and low-risk investing. Nordic Journal of Business, forthcomin. Retrieved from