Financial sector’s capital position as at 31 March 2017: Financial sector stable, banking sector’s capital position strong, insurance sector’s good
According to end-March information released today by the Financial Supervisory Authority (FIN-FSA), Finland’s financial sector remains stable. The banking sector’s capital position is strong and the insurance sector’s solvency position is good.
Banking sector key indicators remain strong
The banking sector’s Common Equity Tier 1 capital ratio weakened in January–March and as at 31 March 2017 was 20% (31 December 2016: 22.2%). The banking sector’s total capital ratio correspondingly declined to 22.5% (31 December 2016: 24.6%). The domestic banking sector’s Common Equity Tier 1 capital ratio was weakened by Nordea Bank Finland Plc’s merger with its Swedish parent company and its becoming a branch. It is therefore no longer included in the Finnish banking sector’s key indicators. In addition, the capital adequacy ratio was weakened by a lower limit set by the ECB for OP Group’s risk weights. The decline in the capital adequacy ratios was moderated by an increase in own funds of some banks, mainly resulting from retained earnings. From the beginning of the year, the definition of banking sector has also covered credit institutions.
The financial and insurance conglomerates’ solvency position was 1.5 (31 December 2016: 1.6). The weakening was due to an increase in the financial sector’s own funds requirement.
Earnings-related pension sector’s solvency position good, equity risk increased
The ratio of the earnings-related pension sector’s pension assets to technical provisions grew to 129.7%, supported by good investment return (31 December 2016: 128.6%). The sector has increased risk-taking by increasing the proportion of equity investments. This was facilitated by a regulatory change that entered into force at the beginning of 2017, which transfers equity risk to an increasing degree to the joint liability of the earnings-related pension system. The first-quarter investment return (2.5%) clearly exceeded the yield requirement. The change in the way of calculating the risk-bearing capacity of the earnings-related pension institutions has no effect.
Life and non-life insurance sectors’ solvency positions good
The life insurance sector’s solvency ratio (SCR) was 195% (31 December 2016: 186%) and the non-life insurance sector’s solvency ratio was 226% (31 December 2016: 220%). Life insurance companies’ premium income rose by 2.9% compared with January–March 2016. New sales of investment products were modest compared with previous years. Non-life insurance companies’ premium income has remained unchanged for three years. The investment return in the life insurance sector was 1.2% and in the non-life insurance sector 1.3%.
Banking sector now also includes other credit institutions
The FIN-FSA extended its definition of the banking sector such that, as of 1 January 2017, it includes other domestic credit institutions (Municipality Finance Plc, Nordea Mortgage Bank Plc, Nordea Finance Finland Ltd, Handelsbanken Finance Plc). It was decided to extend the definition to ensure that the figures for the sector describe as comprehensively as possible the capital adequacy of the banks and credit institutions operating in the banking and credit institution market. Extending the definition of the sector raises capital adequacy figures compared with the previously used definition.
Earnings-related pension sector’s solvency model changed
As of 1 January 2017, the earnings-related pension sector’s new solvency model takes into account the earnings-related pension institutions’ total assets, whereas in the solvency calculation in force at the end of last year only the assets covering the technical provisions were taken into account. Following the change, the new solvency limit and related key indicators, such as risk-based solvency position, are not comparable with the key indicators according to the previous regulation.
- Jyri Helenius, Deputy Director General
- Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5250, weekdays 9.00–16.00
- Capital position of banking sector and of financial and insurance conglomerates as at 31 March 2017 (Excel, in Finnish)
- Solvency position of life and non-life insurance companies as at 31 March 2017 (Excel, in Finnish)
- Solvency position of earnings-related pension companies, industry-wide pension funds and earnings-related pension sector as at 31 March 2017 (Excel, in Finnish)