Financial sector's capital position as at 31 March 2021: Finnish financial sector's capital position remained good


The Finnish financial sector's capital position remained good in the first quarter of 2021. The outlook for the Finnish economy is bolstered by the rapid progress in COVID-19 vaccinations and improvements in business and household confidence. Risks related to the pandemic and economic developments are, nevertheless, still heightened.

‘Even though the state of the Finnish financial sector has remained good during the COVID-19 pandemic, the sector must continue to prepare for possible loan losses and changes in financial market pricing. Thanks to its good capital position, the Finnish financial sector can nevertheless support the economic recovery, despite the uncertainties,’ notes Anneli Tuominen, Director General of the Financial Supervisory Authority.

Banking sector's capital position remained strong

The Finnish banking sector's capital ratios remained stable and stronger than the European average in the first quarter of 2021. At the end of March 2021, Finnish banks’ average Common Equity Tier 1 (CET1) capital ratio was 18.0% (12/2020: 18.1%) and the total capital ratio was 21.1% (12/2020: 21.2%). The amount of Finnish banks’ nonperforming loans also remained moderate and among the lowest in Europe. The quality of and developments in the credit stock do, however, differ considerably between business sectors. Banks’ credit risks have indeed increased in the service sectors, which have suffered most from the pandemic. These sectors, however, account for only a moderate portion of banks’ stock of corporate credit.

Employee pension sector’s investment risk increased

The employee pension sector's solvency ratio improved on the back of return on equities and was 131.9% (12/2020: 129.1%). The other investment classes too, developed positively, and the sector's total return on investment was 5.0%. The sector's solvency position is good. The portion of equities in the sector's investment assets rose, accounting for nearly half of the total volume of investments. Reflecting the rise in equity risk and exchange rate risk, the solvency position remained unchanged (1.7), despite the increase in solvency capital. The ratio of the solvency limit, i.e. the solvency capital requirement, and investment assets rose to its highest level since the introduction of the solvency legislation in 2017 (14.1%, 12/2020: 12.8%).

The employee pension sector's payroll improved slightly from the previous quarter.

Life insurance sector's solvency remained at a good level

Life insurance companies’ solvency ratio strengthened slightly compared with the situation at the end of 2020, and stood at 191.5% (12/2020: 187%). Both own funds and the solvency capital requirement increased. The increase in own funds reflected the rise in the value of unit-linked insurance assets and the decrease in the technical provisions for policies other than unit-linked policies. At the same time, the solvency capital requirement increased, as a result of the higher portion of equity risk.

Investments yielded low returns, reflecting the negative return on fixed-income investments in an environment of higher interest rates. The return on equity investments nevertheless remained strong. In the first quarter of 2021, life insurance companies’ return on investment was 0.7%.

Non-life insurance companies’ solvency weakened by increase in the solvency capital requirement and technical provisions

Non-life insurance companies’ solvency was good at the end of March, despite a decline in the solvency ratio (227.8%) compared with the situation at the end of 2020 (232.4%). The weakening of solvency reflected the increase in the solvency capital requirement in response to the higher equity risk. The amount of own funds was bolstered by return on investment and income from insurance business and was at its highest level since the introduction of Solvency II regulation. Own funds, however, increased less in relative terms than the solvency capital requirement. The growth in the amount of own funds was slowed by the increase in technical provisions, reflecting seasonal fluctuations.

The bulk of the return on investment was accrued from equity investments. The return on fixed-income investments was negative, and the total return on investment was low (0.9%). The profitability of the non-life insurance business was excellent as a result of the decrease in claims expenditure. The number of damages declined due to the ongoing pandemic and the related containment measures, which was reflected in lower economic activity.




Further information

Samu Kurri, Head of Department, Digitalisation and Analysis, tel. +358 9 183 5247. Requests for interviews are coordinated by FIN-FSA Communications, tel. + 358 9 183 5250, weekdays 9.00–16.00.

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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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