surpluses are distributed to the participants anyway. In a profit setting, however, at least in principle, there is an incentive to maximize both the guarantee-plus-bonus through investment strategy – to attract customers – and enhance _profits_ to reward owners.

Within the DC framework it is possible for participants to continue to hold their accounts in funds they choose themselves during the annuity phase. This option is available in all three insurance “categories” in Sweden: private voluntary, private occupational and public PPM insurance. The product is a unit-linked annuity, where funds on the individual’s account are distributed yearly using a divisor based on cohort life tables or simply on the remaining number of contractual payments. The participant’s investment strategy determines the amount left on account at the end of each period, to which the annuity divisor is applied. This product frees the insurance company from the investment risk. Neither is there a longevity risk for the insurer in the life annuity case, as there will always remain a fraction of an account balance to be paid out in the future, for any given life table. Without a survivor benefit, these remaining positive balances will be transferred to the insurer, with the possibility of distributing them to designated survivors and surviving plan participants or retaining them in the business.

In the case of phased withdrawals for 5 or 10 years, which are presently widely used in Sweden, the insurer is also largely freed from all risk. The individual participant takes on the investment risk, while the longevity period is essentially known. When unused account balances are distributed as a contracted survivor benefit, remaining risks depend on the terms set out in the survivor contract.

In _mutually owned_ (not for profit) occupational _schemes_ it is the employer who ostensibly bears the risk during the annuity period – in either the DB or DC case (where the annuity is tantamount to a defined benefit). The employer takes on the role of the owner of the insurance company since employers are obliged to transfer capital to a plan in financial difficulty. The employer’s financial obligation is only ostensible, however, since a need to provide additional capital at the expense of profits can be passed on to concurrent workers in the form of lower future wage increases. In addition, the bonus mechanism provides considerable opportunity to absorb risk, probably freeing the owners from ever having to provide fresh capital, except in the most extreme of situations. A similar risk is borne by employers who retain capital commitments, taking out credit insurance with the insurer FPG.

According to information from the FSA, all Swedish insurance companies, with the exception of one (Alecta), use essentially the same life tables. This means investment portfolios constitute the main means for competition. Life tables used by Swedish insurers are based on cohort projections computed in 1985 by the Swedish Insurance Federation, revised in 1990 and 2007. Annuity conversion factors may eventually have been systematically overstated through an underestimate of increasing longevity, if companies adhered strictly to the 1990 tables for 17 years. This could have been the case, especially for the older elderly. In the end, all other things equal, this affects the bonus. What determines the actual outcome is nevertheless information that is not revealed to the public.

In sum _, de facto_ , the insured bears the longevity risk, either through conservatively chosen life expectancy factors used in computing annuities or through the size of the bonus actually granted – or both. If participants were aware of the exact annuity products they were purchasing or could shop around to purchase annuities, all other things equal, they would choose the company offering the best annuity, which is tantamount to the company willing to take on a larger risk, instead of passing it on to the insured. In a truly competitive annuity 44