Capital position of banking and insurance sectors 31 March 2015: Capital position even stronger
According to end-March data published today by the Financial Supervisory Authority (FIN-FSA), the capital position of the Finnish banking and insurance sectors is good.
The Solvency II regime concerning life and non-life insurance, entering into force at the beginning of 2016, raises solvency capital requirements on an average. Fulfilment of the new requirements in the current environment of low interest rates may require some adjustments, particularly by life insurance companies. Transitional provisions and adjustment measures help to ensure a smooth transition to the new regulation. Some of the adjustments need to be approved by the FIN-FSA and others may be decided on by the company.
– All financial sector participants still need to be prepared for market uncertainties, says Anneli Tuominen, Director General of the FIN-FSA. – In particular, the recent investment returns in the insurance sector cannot be achieved in future without a significant increase in the risk level. Higher risk, in turn, requires sufficient solvency buffers.
Capital adequacy of the banking sector strong
The overall capital adequacy ratio of the banking sector increased to 18.0% (31 December 2014: 17.3%). In early 2015 the common equity tier 1 (CET1) ratio improved, and at the end of March it was 16.6% (31 December 2014: 15.8%).
The capital ratios have improved, because banks have raised new capital. In addition, the amount of risk-weighted assets have decreased due to a more extensive use of internal models.
At the end of March the solvency position of financial and insurance conglomerates was 1.9 (31 December 2014: 2.0). Own funds requirements increased as a result of a change in the calculation method, which was reflected in a slightly weaker solvency position.
Employee pension insurance sector solvency strengthened
The solvency ratio of the employee pension insurance sector strengthened further due to the high return on investment, to 34.9% (31 December 2014: 30.3%). The risk-based solvency position of the sector increased to 2.5 (31 December 2014: 2.1), because large market participants lowered the risk levels of their investment portfolios.
In the first quarter of 2015, the sector's average return on investment was 5.9%. This was largely due to an average increase of 12.2% in the return on equity investments.
Solvency I level of the life insurance sector remained good
The risk-based solvency position remained virtually unchanged at 3.8 (31 December 2014: 3.9). The increased solvency margin raised the sector's solvency position to 5.8 (31 December 2014: 5.1).
The return on investment in January–March was 3.5%, which exceeded the sector's average return requirement on technical provisions (2.4%).
Solvency of the non-life insurance sector strengthened due to the returns on investment
The solvency position of the non-life insurance sector increased to 4.9 (31 December 2014: 4.5), so the Solvency I level remained strong. The risk-based solvency position was 2.8 (31 December 2014: 2.7). The return on investment as from the beginning of the year was 3%. The return on equity investments was 11.8%, whereas the return on fixed income investment was 1.3%.
For further information, please contact
- Anneli Tuominen, Director General, tel. +358 10 831 5300
- Marja Nykänen, Deputy Director General, tel. +358 10 831 5247
- Capital position of banking and insurance sector 31 March 2015 (in Finnish, pdf)