Savings and life insurance in Finland Federation of Finnish Financial Services
CONTENTS Life market... 1 Premium volumes hold steady... 2 Life insurance assets post steady growth... 2 Insurance as a savings vehicle... 3 Insurance-based savings products... 4 Pure risk policies... 8 Breakdown of market between personal and corporate... 9 Corporate scene... 10 Benefit payouts...11 Life insurers performance...11 Statistical annexes: Life insurers - premium income - profit and loss accounts - balance sheets This savings and insurance report was written by special advisors from the Federation of Finnish Financial Services. The statistics and figures of the report are also by the Federation. For further information, contact: Timo Silvola, Head of Public-Private Partnership & Life Insurance tel: +358 20 793 4221, e-mail: timo.silvola@fkl.fi
Life market The Finnish life insurance market can be divided into savings policies and pure-risk policies, according to the products offered. As the term implies, savings policies are products devised for saving or investing money for later use. Pure risk policies, on the other hand, provide cover against life risks such as disability, illness or death of breadwinner. Most Finnish life insurance vehicles are combinations that include both a savings element and life cover. Measured by terms of premiums written, the weight is on savings vehicles, while pure-risk policies play a minor but vital role in the life market. Life insurance is a way to provide financial protection for individuals, families, and to some extent for businesses. Life insurance is also a way to prepare for an uncertain future such as retirement years or unexpected events in life like death of the family s breadwinner. Most of the life insurance products bought are taken out for purposes which supplement the Finnish social security system. Unlike the systems in place in many other EU countries, Finnish social security is largely provided under statutory arrangements. This is why voluntary life insurance plays a less prominent role in Finland. In 2009, each Finn paid an average of 560 in voluntary life insurance premiums. The figure for the whole of Europe stood at 800, and for EU countries at 1,239. Life insurance premiums written in 2002-2009 billion 4.0 4.0 billion Unit-linked Traditional 3.5 3.0 2.5 20 2.0 3.3 2.7 2.9 2.9 18 1.8 2.1 3.2 1.9 3.1 1.5 2.8 1.3 2.6 1.4 3.1 1.2 3.5 3.0 2.5 20 2.0 1.5 1.5 1.0 0.5 0.0 1.8 1.6 1.5 1.3 1.2 1.1 0.7 0.6 2002 2003 2004 2005 2006 2007 2008 2009 1.0 0.5 0.0 1
Premium volumes hold steady The volume of premiums written on voluntary life insurance in Finland in 2009 was 3.1bn. Life insurance accounted for 18.5% of the Finnish insurance market, measured by premiums written. Premium volumes have been relatively steady in recent years. The past few years have seen a major increase in premiums written on unit-linked policies. Much of the growth is explained by increasingly sophisticated and attractive unit-linked products. Moreover, low interest rates have eroded interest in traditional, guaranteed-return products. Life insurance assets post steady growth The volume of life insurance business, which also includes personal pension insurance, can also be measured by life insurance assets, i.e. the amount of funds saved under the policies. Life insurance assets are shown on insurers balance sheets as amounts owed to policyholders, such as future pensions and other benefit payouts. Life insurance assets have been growing at a steady pace over the past few years, and stood at 30.3bn at the end of 2009. Two thirds of the total is held under guaranteed-return policies, although the proportion of assets built up under unit-linked policies is growing. Life insurance assets 2001-2009 2
Nearly half of all Finnish life insurance assets are held in life insurance savings policies. The proportion they cover of the total has stayed around 50% in the past few years. The proportion of personal pension business is on the rise. Life insurance assets broken down by product in 2009 billion 0 2 4 6 8 10 12 14 16 Savings policies 14.2 46.9% Personal pension insurance 10.00 33.1% Voluntary group pension 4.8 15.8% Capital redemption policies 1.3 4.3% Insurance as a savings vehicle The insurance industry offers a variety of products devised for saving or investing in life insurance policies. The products range from savings policies to personal pension plans to capital redemption policies. Insurance-based saving is typically long-term. Moreover, all funds saved under personal pension policies are restricted earmarked for a certain purpose which usually means that the assets may not be withdrawn before retirement. The main difference between insurance-based savings and other savings is that policyholders seek not only good profits but also supplementary pension cover or other protection provided by insurance. Insurance-based savings products can be divided into two according to the returns paid on them. These products are guaranteed returns and unit-linked returns. Guaranteed return is made up of interest paid by the insurer at a guaranteed rate plus a bonus paid in addition to the guaranteed interest. The guaranteed interest rate is agreed in advance and represents a minimum return guaranteed by the insurer on the savings. Bonus is an addition to the guaranteed return determined annually in arrears on the basis of the insurer s performance and investment income. The Ministry of Social Affairs and Health sets the maximum permitted rate of guaranteed interest that insurers may guarantee on new policies. In 2010, the rate may not be higher than 2.5%. It is typical for insurers to pay guaranteed interest at a lower rate than the maximum on new policies and seek to pay as large bonuses as possible to the policyholders. 3
Since the mid-1990s, Finnish insurers have been able to offer their customers unit-linked returns on insurance policies. Unit-linked return, or investment-linked return, depends on the performance of units in the mutual funds which the policyholder has chosen to invest in. Although mutual funds are the most typical investment vehicle, there are a number of other investment instruments that can be used for this purpose. Unit-linked returns make it possible for policyholders to employ a variety of investment instruments. Unit-linked products are particularly well suited for long-term saving such as pension saving. The long period makes it possible to take risks and get returns higher than bond yields, for example by making use of equity markets. Unit-linked instruments vary a great deal when it comes to risk, ranging from short-term bond funds to a variety of equity funds. Many unitlinked policies may be converted into traditional guaranteed-rate policies either in full or in part. Unit-linked policies have been gaining popularity each year. The year 2006 was the first to see premiums written on unit-linked business exceed the volume generated by guaranteed return life business. Insurance-based savings products Life insurance savings policy is a product into which the customer pays either a single premium or several premiums. The policyholder or another beneficiary receives the policy benefit together with the returns accrued on the premium(s) at an agreed date. The contracts are usually concluded for approximately ten years. The policy benefit is paid out only if the insured survives the policy term. Savings policies are often extended to include life cover, which covers an agreed share of the accrued premium(s) in the event of death of the insured. Premiums written on savings policies i in 2002-2009 billion 2.0 1.8 Unit-linked 1.6 1.6 Traditional 14 1.4 1.2 1.2 10 1.0 0.8 1.0 09 0.9 0.9 11 1.1 0.7 1.0 0.6 0.7 04 0.4 0.5 05 0.7 0.4 0.2 0.3 0.4 0.5 0.3 0.0 2002 2003 2004 2005 2006 2007 2008 2009 4
In 2009, life insurance savings policies covered 31% of all premiums written by Finnish life insurers. Savings policy premiums amounted to 962m. Nearly all of the premiums came from personal customers. The amount of premiums placed in unit-linked products was 69%, and 31% was placed in guaranteed return policies. Pension insurance is a product devised for supplementing statutory pension cover in Finland. Policyholders buy the pension policies by paying in contributions which determine the size of pension benefits to be paid out at an agreed retirement age. Pension benefits may be agreed for payout for a fixed period starting at a certain age, or in annuities for life. Pension policies are available in personal pension plans and group pension policies. Personal pension policies may be taken out by either individuals or employers, but group insurance policies may only be taken out by employers. Voluntary pension insurance has been attracting growing interest all through the 2000s. The number of personal pension policies sold in 2009 was nearly 50,000. Policies taken out by private individuals covered 68% of the total and the remaining 32% were taken out by businesses. New policies were typically unit-linked contracts. Roughly 88% of the policies were concluded as unit-linked contracts. As contributions to the pension plans are paid for a long period of time, typically over 20 years, it is very often that the return is tied at the initial stage to the performance of e.g. equity funds. Most pension policies include an option to change the targeted return from unit-linked to guaranteed return. Total number of existing personal pension plans 2000 2009e (Incl. policies paying out benefits) 900 00 00 800 700 600 500 400 300 319 366 420 499 530 577 638 693 737 769 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009e 5
Premiums written on personal pension policies totalled 742m in 2009. Unit-linked premiums covered 67% of the total. The bulk of premiums written on guaranteed return policies came from policies sold in the 1980s and 1990s, as the range of products available at the time did not include unit-linked products. Premiums written on personal pension policies i 2002-2009 million 700 600 500 465 500 500 400 300 200 382 226 407 292 412 361 382 368 400 276 258 253 Unit-linked Traditional 242 100 0 2002 2003 2004 2005 2006 2007 2008 2009 Group pension policies are contracts taken out by employers to cover their employees with supplementary pension cover. This supplementary cover is used as a way to encourage and commit employees. The policy may cover a certain group of employees or all employees of the employer. Part of Finnish life insurers portfolio of group pension business consists of business transferred from wound up pension funds. These policies are typically defined-benefit contracts earning interest at a guaranteed rate. Employer-paid supplementary pension provision has become increasingly popular in Finland in recent years. Supplementary benefits are usually provided under group pension policies which are defined-contribution unit-linked contracts. Unlike the case with defined-benefit contracts, where benefits are fixed in advance and contributions vary, defined-contribution policies pay out benefits fixed in arrears on the basis of contributions paid in plus profits accrued thereon. Most unit-linked group insurance policies provide an option for the insured to influence the choice of assets bought with the funds. 6
Premiums written on group pension policies i in 2002-2009 million 500 500 million Portfolio transfers 450 422 450 400 381 400 350 300 250 200 227 220 212 32 45 24 199 115 268 245 37 19 335 42 350 300 250 200 150 100 195 175 187 223 225 231 266 293 150 100 50 50 0 2002 2003 2004 2005 2006 2007 2008 2009 0 The portfolio transfers shown in the figure above represent pension liabilities which have been transferred to life insurers from dissolved pension funds. Capital redemption policies are investment products offered by Finnish life insurers. They belong in class 6 of life assurance in compliance with the act of class of insurance (526/2008). Capital redemption policies have been typically offered mainly to businesses or institutional customers, but lately private customers have also become interested in them as investment vehicles. Like all other insurance-based savings products, capital redemption policies may be either guaranteed return or unit-linked contracts. Unlike other insurance-based savings vehicles, there is no person insured under a capital redemption policy. The policy includes a savings or investment element, but no risk element. The percentage capital redemption policies cover out of Finnish life insurers operations has grown. The demand for unit-linked capital redemption contracts in particular has increased. 7
Pure risk policies Life insurers provide insurance cover against life risks such as disability, illness or death of the breadwinner. The policies do not usually include any savings component. An example of a pure risk policy is loan insurance, which secures repayment of the granted loan. Pure risk policies play a minor role in the Finnish insurance scene, holding 9% of the market in terms of premiums written. The low figure reflects on the low penetration of life insurance in Finland. Even so, new pure risk policies have been bought at an increasingly brisk pace in recent years, fuelled partly by increased borrowing, because debts naturally add to families need for life insurance cover. Term life insurance Term life insurance has expanded in Finland in recent years. The number of new policies concluded in 2009 was over 160,000. Approximately 39% of the country s working age population is covered by life insurance. The average sum insured stands at 39,700 per insured person of working age. Roughly 70% of the insured are male. Disability insurance Disability insurance can be taken out to cover against temporary or permanent disability from work. The disability may result from either an illness or an accident. Cover against temporary disability usually pays out daily benefits if the insured is disabled from work. Cover against permanent disability typically pays out a lump sum. Sickness insurance Sickness insurance is available in Finland in two main types: medical expenses insurance and critical illness cover. Medical expenses insurance covers costs arising from e.g. consultations with a physician, medical care and medication. Critical illness cover pays out a lump sum if the insured is diagnosed with a critical illness that is covered by the policy. 8
Breakdown of market between personal and corporate In 2009, premiums written on savings and life insurance policies taken out by personal customers covered 69% of the Finnish life market, standing at 2.1bn. Most of the income came from savings products. Of personal customers premiums, 45% was covered by savings products and 24% by personal pension plans. Pure risk policies accounted for 11% of the personal customers market. The proportion of capital redemption policies was about 20%. Corporate customers contributed 31% ( 941m) to premiums written by Finnish life insurers in 2009. More than 61% of this amount came from supplementary pension cover taken out by employers to insure employees. The amount of capital redemption policies was 29%. Premiums written on life policies in 2002-2009 billion 4.0 4.0 billion Personal Corporate 3.5 3.0 2.5 3.3 3.2 2.9 2.9 08 0.8 08 0.8 0.6 0.6 3.1 0.6 2.8 0.7 2.6 3.1 0.9 3.5 3.0 2.5 0.8 20 2.0 20 2.0 1.5 1.5 1.0 2.4 23 2.3 2.3 2.4 2.4 2.1 1.8 2.1 1.0 0.5 0.5 0.0 2002 2003 2004 2005 2006 2007 2008 2009 0.0 9
Corporate scene There are over a dozen players in the Finnish life insurance market. Measured by premiums written, the two largest life insurers are OP Life Assurance Company Ltd and Mandatum Life Insurance Company Ltd. Measured by life insurance assets, the two largest insurers are Nordea Life Assurance Finland Ltd and Mandatum Life Insurance Company Ltd. The table below lists the central companies in the Finnish life insurance market. There is also one more Finnish life insurer not listed here, Retro Life Assurance Company Ltd. Products devised by foreign insurers are also available in the Finnish market, mainly sold through intermediaries. Life insurance company Premiums written in 2009 m, % of total life premiums Life assurance assets at year-end 2009 m, % of total life assets Duo Life Insurance Company Ltd 48 (1.6 %) 122 (0.4 %) Handelsbanken Liv 22 (0.7 %) 77 (0.3 %) Fennia Life Insurance Company Ltd 69 (2.3 %) 725 (2.4 %) Mandatum Life Insurance Company Ltd 764 (24.9 %) 6,473 (21.4 %) Kaleva Mutual Insurance Company 60 (1.9 %) 612 (2.0 %) Nordea Life Assurance Finland Ltd 733 (23.9 %) 7,525 (24.8 %) OP Life Assurance Company Ltd 771 (25.2 %) 6,065 (20.0 %) Skandia Life Assurance Co Ltd 194 (6.3 %) 1,245 (4.1 %) Suomi Mutual Life Assurance Co Ltd 83 (2.7 %) 4,233 (14.0 %) Tapiola Corporate Life Insurance Ltd, and Tapiola Mutual Life Assurance Company 233 (7.6 %) 2,384 (7.9 %) Aktia Life Insurance Ltd 82 (2.7 %) 786 (2.6 %) Insurance Company Life-Alandia Ltd 3 (0.1 %) 34 (0.1 %) Sales channel is the key to success for life insurers. Banks and their branches have been the most important sales channel since 1990s. The life insurance arms known as bancassurers banks set up at the time have grown faster than other life insurers. Today bancassurers hold the largest market shares in Finland. Other distribution channels that are significant for insurers are insurers own branches, agents and brokers. 10
Benefit payouts The amount of benefits paid out under life insurance fell with roughly 18% to 2.9bn in 2009. Policy surrenders covered 791m, payouts of savings accrued under the policies totalled 941m, pensions totalled 854m, and other benefit payouts amounted to 270m. The amount of pension payouts was 11% larger than in 2008. On the other hand, savings payouts were 20% smaller and policy surrenders 38% smaller than the year before. Claims paid under life policies i in 2002-20092009 billion 4.0 4.0 billion 3.5 Other Policy surrenders Benefit payouts 30 3.0 Pensions 2.5 2.0 1.5 1.0 05 0.5 0.0 1.7 0.2 03 0.3 1.8 0.2 04 0.4 0.8 0.7 20 2.0 0.2 0.4 2.2 0.2 0.6 0.8 0.8 3.5 3.5 0.3 3.0 2.9 29 2.9 30 3.0 0.3 0.2 0.3 1.3 2.5 0.8 0.9 08 0.8 2.0 1.3 1.1 12 1.2 09 0.9 0.4 0.4 0.5 0.5 0.6 0.7 0.8 0.9 2002 2003 2004 2005 2006 2007 2008 2009 1.5 1.0 05 0.5 0.0 Life insurers performance Finnish life insurers investments returned an average of 9.5% in 2009, calculated at current values. Investment income amounted to 2.5bn. Operating expenses rose 7% to 230m. Life insurers operating profits returned from the red and rose to 1.2bn. Valuation gains grew by approximately one billion, which makes the total figure 2.2bn. Bonuses were paid for 389m. Finnish life insurers solvency ratio rose to 18%. The figure indicates that Finnish life insurers solvency capital was 18% larger than the amount needed for future benefit payouts to customers. These assets act as a buffer to tide over years of inadequate performance. Life insurers aggregate solvency capital grew by 53% and reached 4.4bn. Their solvency margin rose to 3.8 times the value required by the Insurance Companies Act (521/2008). 11
Annex 5 Life insurers' gross premiums written in Finland in 2009, '000 Market share, Personal Capital Empoyees Other Personal Other Group Other Total direct life redemption Other group group pension personal pension group Total direct premiums business unit linked policies life life life unit linked pension unit linked pension business Reinsurance written % OP Life Assurance Company Ltd 269,652 68,618 184,490 12,169 1,846 93,714 58,761 4,203 77,961 771,414 129 771,543 25.2 Mandatum Life Insurance Company Limited 103,581 298,569 58,736 13,681 4,497 96,816 43,198 34,734 110,592 764,404 2,900 767,304 25.0 Nordea Life Assurance Finland Ltd 106,318 335,549 100,731 0 35,997 100,161 48,388 3,589 1,873 732,605 0 732,605 23.9 Tapiola Mutual Life Assurance Company 46,676 0 49,367 0 9,235 32,051 26,425 0 0 163,754 27 163,781 5.3 Suomi Mutual Life Assurance Company 0 433 16,493 0 0 0 32,437 0 33,818 83,181 0 83,181 2.7 Aktia Life Insurance Ltd. 25,227 200 15,599 1,387 9,903 10,138 14,352 527 3,734 81,067 33 81,100 2.6 Fennia Life Insurance Company Ltd 10,584 8,944 10,177 5,257 3,621 6,663 10,930 2,761 11,054 69,991 19 70,010 2.3 Tapiola Corporate Life 75 0 1,216 6,885 11,522 10,136 10,140 3,891 25,449 69,314 0 69,314 2.3 Kaleva Mutual Insurance Company 0 0 40,559 526 18,524 0 0 0 0 59,609 148 59,757 1.9 Duo Life Insurance Company Ltd 22,365 1,610 15,634 806 0 6,401 1,048 0 0 47,864 0 47,864 1.6 Försäkringsaktiebolaget Liv-Alandia 124 0 514 382 796 370 662 0 422 3,270 0 3,270 0.1 Retro Life Assurance Company Ltd. 0 0 0 0 0 0 4 0 0 4 1,495 1,499 0.0 Finnish total 2009 584,602 713,923 493,516 41,093 95,941 356,450 246,345 49,705 264,903 2,846,477 4,751 2,851,228 93.0 Finnish total 2008 444,261 184,172 678,267 39,766 86,564 360,719 256,509 46,786 333,422 2,430,466 4,300 2,434,765 Growth, % 31.6 287.6-27.2 3.3 10.8-1.2-4.0 6.2-20.6 17.1 10.5 17.1 Skandia Life Assurance Co Ltd, Fb 58,209 0 0 0 0 135,828 0 0 0 194,037 0 194,037 6.3 SHB Liv Forsikringsaktieselskab, fif 16,753 0 0 0 0 4,778 0 0 0 21,531 0 21,531 0.7 Grand total 2009 659,563 713,923 493,516 41,093 95,941 497,056 246,345 49,705 264,903 3,062,045 4,751 3,066,796 100.0 Grand total 2008 497,059 184,172 678,267 39,766 86,564 497,027 256,509 46,786 333,422 2,619,572 4,300 2,623,871 Growth, % 32.7 287.6-27.2 3.3 10.8 0.0-4.0 6.2-20.6 16.9 10.5 16.9
Annex 6 Finnish life insurers' profit and loss account for 2009, '000 Change in Change in accelerated Unrealised provision for Other depreciation Premiums Investment gains/ Claims unearned Operating Investment income and Indirect and optional Profit/Loss written income losses incurred premiums expenses expenses expenses taxes provisions for the year Nordea Life Assurance Finland Ltd 1,209,924 751,351 348,142-922,195-1,050,400-35,006-206,399 0 203 0 95,620 Mandatum Life Insurance Company Limited 781,930 1,064,607 148,211-609,941-575,710-65,179-277,265-649 -118,000-898 347,106 OP Life Assurance Company Ltd 746,367 719,700 353,048-534,524-695,416-47,468-484,928 2,325-15,174 0 43,930 Tapiola Mutual Life Assurance Company 163,698 221,624 33,101-151,742-145,417-24,626-98,156 29,132-520 935 28,029 Suomi Mutual Life Assurance Company 83,142 1,254,042 0-503,454 2,388-15,156-691,665-4,498 2,813 12 127,624 Aktia Life Insurance Ltd. 80,710 45,539 39,735-88,960-21,248-10,892-35,178 0-2,292 0 7,414 Fennia Life Insurance Company Ltd 69,563 88,069 25,861-60,387-81,178-7,533-22,799 0-34 -40 11,522 Tapiola Corporate Life 67,788 91,811 6,626-70,312-32,468-9,082-50,515-37 -605 0 3,206 Kaleva Mutual Insurance Company 59,574 161,342 0-68,737-49,961-7,576-42,647-404 -21 11 51,581 Duo Life Insurance Company Ltd 47,789 10,927 866-8,911-42,763-6,670-364 -4 0 2 872 Försäkringsaktiebolaget Liv-Alandia 3,228 4,968 1,230-3,796-796 -504-2,339 12-39 13 1,977 Retro Life Assurance Company Ltd. 1,011 6,804 0-3,879 2,104-669 -3,739 568-5 0 2,195 Total life sector 3,314,724 4,420,784 956,820-3,026,838-2,690,865-230,361-1,915,994 26,445-133,674 35 721,076 Finnish life insurers' balance sheet for 2009, '000 ASSETS LIABILITIES Technical Covering Prepayments provisions for Accruals and Intangible unit-linked Total Other and accrued Total Capital and Untaxed Subordinated Technical unit-linked Total deferred Total assets Investments business debtors assets income assets reserves reserves debt provisions business creditors income liabilities Nordea Life Assurance Finland Ltd 150 5,206,308 4,110,103 27,485 46,206 87,779 9,478,031 234,250 0 110,000 4,908,871 4,092,895 110,597 21,418 9,478,031 Mandatum Life Insurance Company Limited 13,680 4,926,160 2,287,421 79,338 57,626 65,110 7,429,335 454,687 3,576 100,000 4,418,680 2,280,725 74,310 97,357 7,429,335 OP Life Assurance Company Ltd 26,865 3,906,151 2,381,452 168,427 144,847 17,276 6,645,018 365,612 0 90,830 3,727,210 2,379,708 64,638 17,020 6,645,018 Suomi Mutual Life Assurance Company 5,443 5,841,380 0 26,569 50,071 43,569 5,967,032 698,734 181 0 5,138,481 0 101,488 28,148 5,967,032 Tapiola Mutual Life Assurance Company 15,737 2,382,086 466,089 8,974 59,361 39,593 2,971,840 146,033 3,330 55,000 2,279,305 464,725 17,219 6,228 2,971,840 Kaleva Mutual Insurance Company 842 1,080,854 0 19,596 16,860 14,402 1,132,554 194,410 2,046 0 928,125 0 7,099 874 1,132,554 Aktia Life Insurance Ltd. 1,909 658,834 208,853 3,138 3,558 13,560 889,852 69,826 0 2,100 602,035 210,298 2,298 3,295 889,852 Fennia Life Insurance Company Ltd 3,465 561,638 243,736 5,682 9,091 7,605 831,217 58,151 63 0 525,009 244,693 1,878 1,423 831,217 Duo Life Insurance Company Ltd 2,973 75,842 69,624 0 320 1,008 149,767 22,668 16 0 55,990 69,343 35 1,715 149,767 Försäkringsaktiebolaget Liv-Alandia 7 42,557 3,797 1,047 960 616 48,984 6,357 165 0 38,563 3,503 56 340 48,984 Retro Life Assurance Company Ltd. 0 29,409 0 2,259 144 283 32,095 4,872 0 0 26,216 0 844 163 32,095 Total life sector 71,071 24,711,219 9,771,075 342,515 389,044 290,801 35,575,725 2,255,600 9,377 357,930 22,648,485 9,745,890 380,462 177,981 35,575,725
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