Equities boosted insurers’ investment portfolios

Favourable development of the equity market substantially increased the value of insurance companies’ equity investments last year. The market value of equities and units grew seven percent from the previous year. Calculated on current values, they returned a profit of eleven percent. At year-end 2015, the aggregate market value of insurers’ investments was €141 billion, which is a growth of three percent from the year before.

The biggest share of insurers’ investments – €103 billion – was held by authorised pension companies. The temporary act on pension insurers’ solvency, drafted due to the financial crisis in 2008, evidently continues to bear results. Its purpose was to prevent pension insurers from running into a situation in which they would be forced to sell investment property at a loss in order to mitigate risks and improve solvency. Due to the temporary act, they did not have to sell Finnish shares at an unfavourable time.

Esko Kivisaari, Deputy Managing Director of the FFI, points out that good performance cannot be taken for granted in the future. “Continuing weak development of the economy and the present low interest rates will inevitably draw profits down.”

The solvency model of authorised pension companies has been reformed, and the new model will enter into force in 2017. “The new system is more risk-based than the current one. It still enables investments in profitable instruments like equities”, Kivisaari says.

The year 2015 was positive for insurance companies also in other ways, not just in terms of investments. Operating profits were quite good and total performance was adequate. Solvency decreased slightly, but remained on a good level. The development of premium income, however, was hindered by unemployment, which showed no signs of recovery.

Insurers’ aggregate premium income increased 3% to a total of €24 billion. Life insurers’ premium income grew the most (6%) due to the demand for unit-linked insurance. Total premium income was €6.3 billion. Non-life insurers’ premium income only reached €4.5 billion, which is one percent less than the year before. Pension insurers’ premium income, which is strongly linked with payroll development, increased 4% to €13.2 billion.

Claims and pension benefits were paid by insurers for slightly under €21 billion, which is 2% more than the year before. Non-life insurers’ combined ratio, which measures the companies’ efficiency, shrank to 96.2%, indicating slight improvement from the previous year.

There were 55 Finnish insurance companies and 14 branches of foreign insurance companies operating in Finland in 2015. In total they employed nearly 9,700 persons.

Read more: Finnish Insurance in 2015