The life insurance sector: unit linked life insurance accounts for about half of insurance premiums by volume
Estonian life insurers received 59 million euros in insurance premiums in the second quarter of 2017, which was 10% more than in the first quarter. The volume of insurance premiums was also up for the half year, as 112 million euros were received in the first half of 2017, which was 11% more than in the first half of 2016.
The largest part by volume of life insurance premiums went into unit linked life insurance products, and in the second quarter they received 30.2 million euros, which was 17% more than in the first quarter. Unit linked life insurance received 49% of all premiums in the first half of 2017. This was followed by the 16.5 million euros of annuity insurance and 7.1 million euros of other life insurance.
Life insurance companies received claims for payouts of 32.4 million euros in the second quarter. In the first two quarters of 2017 together, the total of claims was 68.1 million euros, which was 18% more than a year previously, and equal to 61% of the insurance premiums received. Unit linked life insurance received the most claims in the first half of the year, at 40 million euros in value or 59% of all the claims.
There was no significant change in the volume of assets of life insurance companies during the second quarter, as it grew by 0.7% to 1.2 billion euros, which represents yearly growth of 9%. Neither were there any significant changes in the structure of assets and liabilities. The growth in the volume of unit linked life insurance means that the underlying assets now account for 56% of all the assets of insurance companies, and the technical provisions of unit linked life insurers account for 51% of all the liabilities of insurers.
The ratio of costs to net insurance premiums at the end of the second quarter stood at a cumulative 16.1%, which is 0.4 percentage point less than in the first half of 2016. This ratio varies from insurer to insurer between 9% and 29%.
The coverage of the Solvency Capital Requirement by own funds of life insurers was 185% at the end of the second quarter. The growth in own funds is increasing because of the rise in the risk-free interest curve and in profitable activity. The main risk components in the Solvency Capital Requirement are life insurance risk and market risk.
All life insurance companies met the legal capital requirements and the minimum capital requirement was covered 7.1 times over.
Main development trends and risks
- The international insurance groups associated with Estonia are reorganising their activities.
- Movements in the risk-free interest curve have had a beneficial effect on insurers that have long-term liabilities with financial guarantees, as the rise in the risk-free interest rate has slowed the growth in liabilities.
- Coverage of the Solvency Capital Requirement is increasing because of the rise in the risk-free interest rate and the profitability of the sector.
- Some 49%, or around half, of insurance premiums by volume are going into unit linked life insurance, and 65% of the volume of premiums, or around two thirds, is coming from outside Estonia.
- The Funded Pensions Act was changed. The biggest change permits second pillar pension contracts where the value of the underlying asset depends on the value of the investment fund chosen by the insurance client. This will probably lead to the development of products in the portfolios of insurance companies.