News release 19 December 2023 – 13/2023

Survey of compliance with principle of equity by life insurance companies in 2022: Bonuses granted by life insurance companies did not fully take into account the changed economic situation

In connection with the publication of the 2021 survey of compliance with the principle of equity, the Financial Supervisory Authority (FIN-FSA) reminded life insurance companies that bonuses promised by the companies must also increase as market interest rates rise. If companies have paid dividends to their shareholders in better years for the companies, it must correspondingly be possible for funds to be returned to policyholders when the situation changes. The FIN-FSA stated that this should have already been taken into account when bonuses for 2022 were decided. The FIN-FSA’s position was not fully implemented in the insurance policies with the lowest guaranteed interest rates.

The following findings were made in this year’s survey:

  • In general, the companies had not been prepared, given the dividends distributed by the companies to their shareholders and interest on the guaranteed capital in 2023 and preceding years, to distribute higher bonuses in 2022 than in previous years. The bonuses distributed by the companies have not fully corresponded to the reference returns of bonus targets published by the companies. 
  • In accordance with the principle of equity, the companies had taken into account equity between the different insurance policies of their customers. The companies should also, however, evaluate situations where, in individual cases, a low level of bonuses may result in an inequitable outcome for the insured.
  • Information on the distribution of the surplus among policyholders and shareholders was not disclosed such that policyholders could assess the equity of the distribution of the surplus.

From the standpoint of the benefits of the insured, the change in the financial market change should have a positive impact on bonuses

The regulation of bonuses is principle-based. It is described in detail both in the survey now published and in the document “Presentation of the principle of equity and companies’ distribution of bonuses” (in Finnish), which is appended to the survey.

According to the survey of compliance with the principle of equity published by the FIN-FSA, there are large variations in companies’ principles for distribution of bonuses. Over the past fifteen years, customer bonuses granted by companies for their savings and pension insurance policies have gradually decreased, even though the overall returns on insurance policies have exceeded on average both the change in consumer prices and market interest income. 2022 was an exception to this.

In 2022, consumer prices rose by 9.1% and occupational pensions by 6.8%. If this year’s inflation is also taken into account, then consumer prices have risen by around 15% and occupational pensions by 13% in two years.

Insurance products have no inflation protection, not even occupational pensions. It is, however, a good starting point when considering the level of return insurance policies will receive. Rapid inflation eats up the capital of insurance policies. The FIN-FSA therefore requires that companies take into account the prevailing economic situation. In accordance with the principle of continuity required by the principle of equity, companies should in the future assess the need to compensate for the low bonuses now being distributed.

The FIN-FSA’s survey is in Finnish and contains a summary in Swedish.

For further information, please contact:

Jari Niittuinperä, Chief Actuary, telephone +358 9 183 5517

Appendices (in Finnish)