Financial position and risks of supervised entities as at 30 June 2019: Weaker economic cycle weighs on the Finnish banking and insurance sector


The weakening of the economic cycle, the persistently low level of interest rates and tighter competition are increasing the risks in the Finnish banking sector. The banking sector’s capital position is still stronger than the EU average, despite a slight weakening in the first half of the year. Life and non-life insurance companies are burdened particularly by the low level of interest rates. Pension institutions’ solvency ratio strengthened due to a favourable return on investments.

Strong capital positions protect the banking sector against the heightened risks in the operating environment.

The weakening of the economic cycle, the persistently low level of interest rates and tighter competition overshadow the outlook for the Finnish banking sector. The heightened risks in the operating environment are not yet reflected, however, in Finnish banks’ credit portfolio or capital adequacy. The banking sector’s Common Equity Tier 1 (CET1) capital ratio (30 June 2019: 16.6%) weakened in the first half of the year by 0.6 percentage points and the total capital ratio (30 June 2019: 20.6%) by 0.3 percentage points. The capital ratios nevertheless remained stronger than the European average. The amount of non-performing loans in the Finnish banking sector is still among the lowest in Europe.

The results of a risk survey conducted by the FIN-FSA in summer 2019 show that banks expect the quality of their credit portfolio to remain more or less unchanged over the next 12 months. The majority of the banks also expect credit standards to remain unchanged. The terms and conditions of mortgage lending show signs of loosening, however. The margins on housing loans have narrowed and maturities have lengthened overall.

“Banks must ensure that the pricing of housing loans does not pose excessive risks to profitability. They must take into account, in particular, the possible rise in funding costs over the maturity period,” emphasises the FIN-FSA’s Director General, Anneli Tuominen.

Life insurance companies’ solvency position weakened and claims incurred increased

The solvency ratio of the life insurance sector declined significantly in the first half of 2019, and was 185.5% at the end of the second quarter 2019 (31 Dec 2018: 207.3%). The solvency capital requirement increased, due to growth in technical provisions and higher valuation of equities. Negative interest rates burden the performance of life insurance companies, in particular.

Life insurance companies’ premiums written in the first half of 2019 declined slightly on the previous year. The largest decrease in premiums written was recorded in endowment insurance. Claims incurred clearly exceeded the amount of premiums written. Claims incurred also include surrenders of investment policies.

Life insurance companies’ return on investment was 5.8% in the first half of 2019. The return on equity investments was 11%, a recovery from the level in the previous year. Fixed-income investments generated a solid return, due to the lower level of interest rates. The return on real estate investments remained stable.

Non-life insurance sector’s solvency position weakened but remained sound

The higher solvency capital requirement, as well as the decline in interest rates weakened the solvency position of the non-life insurance sector, compared to the record-high level at the end of 2018. The solvency ratio was 222.5% at the end of June (31 Dec 2018: 238.0 %). The increase in the solvency capital requirement for equity risk was due to the rise in the market price of equities and the fact that some of the companies no longer applied the transitional provisions on equity risk. The decline in interest rates increased non-life insurance companies’ long-term insurance obligations and weakened their solvency positions.

The profitability of the non-life insurance sector hinged on return on investment. The rise in equity prices boosted the return on equity investments. Non-life insurance companies benefited from the decline in interest rates and the narrowing of risk margins. A significant portion of their fixed-income investments are in corporate bonds. The return generated by the insurance business was negligible, due to unfavourable claims development.

Pension institutions’ solvency position strengthened in the first half of the year

Private sector pension assets have increased in the current decade by EUR 38 billion, to EUR 130 billion. The difference between premiums written and benefits paid in the private sector has been clearly negative since 2011. The growth in pension institutions’ pension assets depends on the return generated by their investments, which in the current decade have increased the amount of pension assets by on average EUR 4.2 billion per annum, despite two years of weak investment return. 

Pension institutions’ solvency improved, as return on investment was higher than the return requirement in the first half of the year. Pension institutions’ return on investments was 6.6%, the majority of which was generated by equity investments. At the end of June 2019, the amount of pension assets relative to technical provisions, i.e. the solvency ratio, was 127% (125%, 31 Dec 2018). The solvency position of pension institutions also strengthened slightly. 

At the end of June 2019, the total risk-based solvency limit of pension institutions was EUR 16.1 billion, i.e. some EUR 1 billion higher than at the end of 2018. The rise in the solvency limit was mainly due to the growth in investment assets.



Further information

Jyri Helenius, Deputy Director General

Samu Kurri, Head of Department, Digitalisation and Analysis

Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030, weekdays 9.00–16.00.



About Finanssivalvonta

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Finanssivalvonta, or the Financial Supervisory Authority (FIN-FSA), is the authority for supervision of Finland’s financial and insurance sectors. The entities supervised by the authority include banks, insurance and pension companies as well as other companies operating in the insurance sector, investment firms, fund management companies and the Helsinki Stock Exchange. We foster financial stability and confidence in the financial markets and enhance protection for customers, investors and the insured.

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