Nordic insurance is a vital supplement to the welfare state report finds

"The Nordic countries have long been associated with cradle-to-grave welfare states. However, demand is growing for private provision supplied by the insurance industry. Demand for occupational pensions is growing as a consequence of reductions to state benefits due to ageing populations," said Bjorn Norrman, analyst in Fitch's insurance team. "Private health insurance is also gaining importance, reflecting dissatisfaction with public healthcare."

Fitch expects consolidation in the fragmented Nordic health insurance market because the main profit driver will be scale. This determines insurers' bargaining power for cost-effective procurement of health services and cost-efficiency in general, which is crucial in a competitive market.

Nordic insurers look set to be well-capitalised under Solvency II. However, clarification of the definition of contract boundaries which future cash flows to take into account in determining reserves and capital requirements will be crucial for group pension schemes, which account for a large part of the Nordic life insurance market.

"The inclusion or exclusion of expected but non-contractual cash flows, for example in respect of new employees joining a company pension scheme, can make a big difference to the capital position calculated," Mr Norrman added. "This is because expected profits in future premiums are likely to qualify as Tier 1 capital under Solvency II."