Survey of compliance with principle of equity by life insurance companies in 2023: The overall returns of the companies appear good on average and the development trend appears to be upwards – the Financial Supervisory Authority will continue to monitor
In 2023, the Financial Supervisory Authority (FIN-FSA) drew the attention of life insurance companies to the equity of bonuses, emphasising that bonuses should be assessed in the light of the changed financial situation. Companies, indeed, generally increased the overall level of bonuses for 2023 compared with the previous year.
The results of life insurance companies vary from year to year. In accordance with the principle of continuity, the amount of bonuses should be smoothened over the years. As the bonuses distributed by the companies have, despite the increases, remained significantly below the development of consumer prices in recent years, the companies can be expected to continue to distribute bonuses corresponding to the current overall level of bonuses.
The following findings were made in this year’s survey:
- In general, companies have distributed higher bonuses in 2023 than in previous years. However, the level of bonuses has been low, taking into account actual inflation and the longer-term surplus of the companies.
- In accordance with the principle of equity, the companies had taken into account equity between the different insurance policies of their customers.
- Information on the distribution of the surplus among policyholders and shareholders was not disclosed such that policyholders could assess the equity of the distribution of the surplus.
Strong rise in consumer prices can be compensated for over several years
According to the survey of compliance with the principle of equity published by the FIN-FSA, there are large variations in companies’ principles for distribution of bonuses. Customer bonuses granted by companies for their savings and pension insurance policies have gradually decreased prior to 2023, even though the overall returns on insurance policies have exceeded on average both the change in consumer prices and market interest income. In 2023, customer bonuses increased to some extent. During 2022 and 2023, consumer prices have risen, in total, by more than 12%.
Insurance products have no inflation protection. It is, however, a useful starting point when considering whether the bonuses granted by insurance companies are reasonable. The returns on insurance policies are quickly lost if benefits lag far behind inflation. Interest rates of different durations, on the other hand, partly reflect inflation expectations over different time spans, but in recent years the level of interest rates has been very low compared with inflation. Taking into account actual inflation and the bonuses distributed by the companies, the FIN-FSA requires that companies take into account the principle of continuity required by the principle of equity when determining bonuses.
The regulation of bonuses is principle-based. It is described in detail both in the survey now published and in the document “Presentation of the principle of equity and companies’ distribution of bonuses” (in Finnish), which is appended to the survey.
The FIN-FSA’s survey is in Finnish and contains a summary in Swedish.
For further information, please contact:
Jari Niittuinperä, Chief Actuary, telephone +358 9 183 5517