The Danish parliament has adopted an act harmonizing rules regarding investments made by certain financial institutions (Act No. 490/1998) such as life insurance companies, pension funds and LD pensions. Financial institutions will be subject to limitations with regard to the proportion of their investment assets placed in certain securities. Before the act, investments in shares were limited to 35-40% of the total assets of the institutions. The purpose of the act is to attract venture capital to Danish businesses and to increase the proportion of foreign shares held by the institutions.
Among other things, a share limit will help ensure that the institutions will be able to meet their obligations towards the insured and reduce the risk of bankruptcies in the pension sector, which has so far been unheard of in Denmark.
It is argued that a share limit is easy to administrate and helps prevent the need for detailed supervision from the Danish financial supervisory board.
The limit has now been increased to 50% of the institutions' assets, and the rules regarding the securities in which the institutions may invest have been harmonized.
The harmonization of the investment limit presupposes that shares and other holdings will be estimated at market value. Market value is considered a more correct expression of the value of the shares than the price at which the shares were bought.
With regard to bonds, the transfer to an assessment based on market value will take place gradually and will not become fully effective until 2001.
The act entered into force on August 1 1998 and has effect for accounting purposes for the accounting year 1998.