Capital position of banking and insurance sectors 30 September 2015: Capital position still at a good level
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 slightly deteriorating capital position of the insurance sector is largely due to a fall in stock prices.
– Stock price movements in the third quarter clearly reflect the high risk level of the present operating environment, says Anneli Tuominen, Director General of FIN-FSA. – Even though the quick recovery of the investment environment in October again changed the situation from the end of September the supervised entities must be prepared for both wide market price fluctuations and a weakening economic situation.
Capital adequacy of the banking sector strong
The overall capital adequacy ratio of the banking sector increased to 21.6% (30 June 2015: 19.0%). The common equity tier 1 (CET1) ratio continued to improve, and at the end of September it was 19.6% (30 June 2015: 17.5%). The capital adequacy improved due to both injections of new capital and more extensive use of internal models. The use of models reduces the risk-weighted assets, which in turn reduces the need for capital.
The growth of own funds of financial and insurance conglomerates slightly improved their solvency position. At the end September it was 2.0 (30 June 2015: 1.9).
Employee pension insurance sector solvency remained good
The solvency ratio of the employee pension insurance sector decreased to 28.1% (30 June 2015: 32.5%), but it still remained at a good level. The weakening of the investment environment, particularly in August–September, and the high return requirement on pension assets contributed to the decrease in the solvency ratio.
In January–September 2015 the return on investments of the employee pension insurance sector was 2.1%, compared to a return requirement of 4.0% for the period. The drop in the solvency ratio and the modest stock market return will in future lower the return requirement.
Solvency of the life and non-life insurance sectors at a good level
The solvency position of the life insurance sector was 5.0 after a slight decline (30 June 2015: 5.1). The risk-based solvency position deteriorated to 4.1 (30 June 2015: 4.3). The return on investments in January–September was 2.1%. This was below the average return requirement on technical provisions, which was 2.4%.
The solvency position of the non-life insurance sector was 4.1 (30 June 2015: 4.4). The risk-based solvency position remained at the 2.6 level of end-June, but had declined slightly compared to the year end (31 December 2014: 2.7).
The current solvency requirements of the life and non-life insurance sectors will be replaced by the new Solvency II regime at the beginning of 2016. The ratios of the new regime will be at a new level, and their sensitivity to fluctuations due to changes in the market will increase. According to the first preparatory phase report, the amount of own funds in the life and non-life insurance sector at the end of September was a little more than 1.5 times the solvency capital requirement. However, this amount will probably change before the turn of the year in connection with, among other things, the entry into force of various transitional provisions.
For further information, please contact
- Anneli Tuominen, Director General, tel. +358 10 831 5300
- Jyri Helenius, Head of Department, tel. +358 10 831 5312