Press release 3 December 2014

Capital position of banking and insurance sectors, 30 September 2014, and stress tests: Financial sector well-capitalised, but stress tests highlighted need to prepare for upcoming regulation in the life and non-life insurance sector

According to end-September data published today by the Financial Supervisory Authority (FIN-FSA), the capital position of the Finnish banking and insurance sectors is still good.  The stress tests show that, overall, the Finnish banking sector and employee pension insurance companies could withstand an abrupt deterioration in the operating environment. However, the solvency reform of the life and non-life insurance sector require measures on the part of the companies.

Banking sector capital adequacy remained strong

The banking sector's Common Equity Tier 1 (CET1) capital ratio strengthened slightly in the third quarter and was 14.3% at the end of September (30 June 2014:  14.1%).  The total capital ratio rose to 16.0% (30 June 2014: 15.3%).

Risk-weighted items remained unchanged, and the improvement in capital adequacy was due to growth in own funds. An increase of EUR 0.9 billion in original own funds comprises retained earnings and acquisition of new capital. The bulk (90%) of own funds consists of CET1 capital. Banks already meet the capital requirements, due to be tightened at the beginning of next year, which raise the CET1 capital requirement for banks to 7%.

Financial and insurance conglomerates' combined solvency position remained unchanged at 1.9.

Solvency development in the employee pension insurance sector continued on a steady trend, life and non-life insurance sectors maintained a good level of solvency

The solvency ratio of the employee pension insurance sector continued to strengthen in the third quarter, and its risk-based solvency position was unchanged at 2.2. Employee pension institutions’ solvency ratio at the end of September was 31.1% (30 June 2014: 30.5%). The average risk-bearing capacity of employee pension institutions can be considered strong. Even so, the risk level has continued on a slight upward trend, as the share of hedge funds and shares of the investments increased.  Investments yielded an average return of 5.6% in January-September.

The solvency position of the life insurance sector remained at a good level in the third quarter of the year.  The risk-based solvency position was unchanged at 3.7.  The solvency margin rose to 6 times the statutory minimum (30 June 2014: 5.9). Average return on investment was 5.9% in January-September.

The solvency of the non-life insurance sector remained strong in the third quarter, and the sector's solvency position was at the end-June level of 4.5. The risk-based solvency position also remained at the same level as at the end of June (2.5). Average return on investment was 3.8% in January-September.

Banking sector would withstand deterioration in the operating environment

On the basis of European and national stress tests, the Finnish banking sector would withstand an abrupt deterioration in the operating environment. According to the results, banks' impairment losses would increase and the whole sector's CET1 capital ratio would decline to a level of 11.6% in 2016 in the adverse scenario. Financial and insurance conglomerates' own funds surplus would contract but would withstand the adverse scenario.

Investments by employee pension insurance companies record a loss in the stress scenario

Overall, the solvency of employee pension insurance companies would withstand the impact of a weak operating environment. In the scenarios tested, employee pension insurance companies’ return on investment turned negative, which considerably lowered company-specific solvency levels. The developments generated in the stress test would, for many employee pension insurance companies, imply a need to reassess their investment strategies for safeguarding their solvency.

New regulation put pressure for change on the life and non-life insurance sector

Changing regulation necessitates measures on the part of some companies for meeting solvency requirements. In the stress test, regulatory changes are combined with the impact of an adverse economic scenario, which increases the number of companies expected to implement corresponding measures.

The stress test for the life and non-life insurance sector focused on the companies’ risk resilience under the solvency framework scheduled to enter into force at the beginning of 2016. In assessing the results, consideration should be given to the fact that companies’ preparations for the new regulatory regime is still in progress.

'In the insurance sector, the main vulnerabilities are related to rapid adverse developments on stock and bond markets combined with the very low level of interest rates. A particular challenge for the banking sector is the weakness of the real economy,' notes Anneli Tuominen, Director General of the FIN-FSA. ‘Companies need to prepare for regulatory reforms and risks associated with a weaker and more challenging operating environment by taking measures to strengthen solvency, notably in the life and non-life insurance sector. Ensuring the adequacy of such measures will also be a supervisory priority.’

Impact of stress test scenario results on capital positions

Life and non-life insurance companies, total:
Solvency capital ratio under different scenarios
Market scenario 1 (EU equity market distress)    66.4 %
Market scenario 2 (Non-financial corporate bond market distress)  111.4 %
Low Yield scenario 1 (Japanese scenario)  120.0 %
Low Yield scenario 2 (Inverse Scenario)  129.7 %


Source: Financial Supervisory Authority   Outcome
31 Dec 2013 
Banking sector:
Common Equity Tier 1 (CET1) capital ratio,
% under adverse scenario in 2016

11.6 %

14.8 %
Financial conglomerates:
Total regulatory capital / minimum amount of
regulatory capital under adverse scenario in 2016


Pension insurance companies:
Risk-based solvency position
(solvency capital / solvency limit)


  • EIOPA stress test scenarios were applied to life and non-life insurance companies, EBA/ECB stress test scenarios to banks and financial conglomerates. Own scenario was designed for pension insurance companies with 30 June 2014 as the base date.
  • Life and non-life company results include all companies, those reported to EIOPA and those participating in national stress test.
  • In addition to banks participating in EBA/ECB stress test, the banking sector includes the rest of the Finnish banking sector.
  • As for financial conglomerates, the capital requirement regarding banking business is affected by changing capital requirements for banks in 2014-2016.
  • Regulatory thresholds for the capital/solvency ratios presented: solvency capital ratio for life and non-life insurance companies: 100%, CET1 ratio for banks: 7% (from the beginning of 2015), solvency ratio for financial conglomerates: 1, risk-based solvency position for pension insurance companies: 1. 

For further information, please contact

  • Anneli Tuominen, Director General. tel. +358 10 831 5300
  • Jyri Helenius, Head of Department, tel. +358 10 831 5312

See also

The corresponding Finnish-language press release was published on 30 November 2014.