Financial sector’s capital position as at 31 March 2019: Finnish financial sector’s capital position remained good
According to end-March information released today by the Financial Supervisory Authority (FIN-FSA), Finland’s financial sector remained stable, despite a weakening of the capital position in many subsectors. In spite of the weakening, the capital adequacy of the Finnish banking sector remained stronger than the average for EU banks. Similarly, the solvency position of life and non-life insurance companies remained sound, despite some weakening, whereas that of the employee pension sector improved.
Capital ratios for the banking sector declined – capital position still above European average
Risk-based capital ratios and the leverage ratio for the Finnish banking sector declined in the first quarter of 2019. This decline was related particularly to continued brisk corporate lending and an individual business acquisition.
Notwithstanding the decline, capital ratios for the Finnish banking sector remained stronger than the average for EU banks. The leverage ratio for the Finnish banking sector was in line with the European average at the end of March 2019.
Employee pension sector’s solvency position improved
Measured by the solvency ratio, the solvency position of both employee pension companies and the pension funds operating a statutory pension scheme improved. All main asset classes yielded a positive return, thus building up pension assets. The average return on invested assets rose to 4.9%, largely on the back of higher returns on listed shares.
The risk-based solvency position remained unchanged, as the solvency limit and solvency capital both increased proportionally.
Life insurers’ solvency position at its weakest since 2016
Although declining clearly, the solvency position of the life insurance sector remained sound. The risk-based solvency capital requirement (SCR) for life insurance companies increased more than own funds, thus eroding solvency. Interest rate developments in early 2019 have also not favoured life insurance companies, as falling interest rates entail higher technical provisions.
The return on investment for the first quarter was 3.5%. No life insurance companies reported any investment losses.
Higher solvency requirements weakened non-life insurers’ solvency
The solvency position of non-life insurance companies remained good, despite some deterioration in the early part of the year. The deterioration was due to a number of reasons. The solvency capital requirement (SCR) increased, reflecting a rise in the capital requirement on equity investments in response to rising share prices. The higher capital requirement on equity investments was also related to the fact that some companies abandoned the use of the transitional measures related to equity investments. Own funds increased less, in relative terms, than the capital requirement. The seasonal variation increased non-life insurance obligations, which reduced own funds and the SCR ratio.
The return on investment for non-life insurance companies was 3.4%. Market price developments were favourable to the investments of non-life insurers, which obtained returns on both equity and fixed-income investments. There were no major changes in the level of risk associated with the investments made in the non-life insurance sector.
Samu Kurri, Head of Department, Digitalisation and Analysis. 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 2019 (Excel)
- Solvency position of life and non-life insurance companies as at 31 March 2019 (Excel)
- Solvency position of pension companies and pension funds and the employee pension sector as at 31 March 2019 (Excel)