Growth and profitability were seen in the markets of insurance companies, capital market participants and financial enterprises last year. Low yield environment and transactions potentially harming consumers’ interest pose challenges, while the MNB has managed to reduce several risks by introducing the concept of Certified Consumer-friendly Home Insurance and by regulating the activities of real estate funds and speculative capital transactions. These are the key findings of the MNB’s Report on Insurance, Funds and Capital Market Risks and Consumer Protection.
The Magyar Nemzeti Bank (MNB) used to publish the „Insurance, Funds and Capital Market Risk Report” and the „Financial Consumer Protection Report”. From 2020, instead the two separate reports, the MNB publishes the „Report on Insurance, Funds, Capital Market Risk and Consumer Protection” in order to give a full picture of the most important changes in the insurance, funds and capital market sectors, and to show the microprudential and consumer protection risks side by side.
The insurance sector’s premium income grew by over 10 percent last year relative to the previous year. The non-life segment, in particular the vehicle insurance being the main reason of this growth which however, partly reflected the effects of the insurance tax being included in the compulsory motor third-party liability insurance premium. In the life segment, traditional single and top-up premium incomes grew the most significantly, close to the average of previous years. The sector’s profitability has been outstandingly high for three years; and the capitalisation rate has been at twice the regulatory level and continued to be broadly stable due to its favourable asset structure. Although the sector’s stability is adequate, real economic effects may pose challenges even in the short term. In the area of consumer protection, one of the most important step was the development of the concept of Certified Consumer-friendly Home Insurance which may lead to an increase in competition in the home insurance market by the end of this year. Concentration in the intermediary market continued. Insurance premiums on policies intermediated by brokers and multiple agents has increased, mainly due to the non-life segment.
The number of both institutions and fund members fell last year in the voluntary funds where the ageing of members poses a challenge in terms of the sector’s future sustainability. Membership fee paid by members of voluntary pension funds fell slightly while employers’ membership fee contribution fell significantly. The increase in membership fee paid by members to health and mutual aid funds was insufficient to offset the sharp decline in employers’ membership fee contribution. Due partly to this factor, the sector’s institutions registered negative profit at the end of the year. By contrast, voluntary pension funds were profitable in 2019, as in previous years, realising a 9.8 percent return on members’ investments at sector level.
The number of financial enterprises not belonging to a banking group rose slightly last year. In this sector, outstanding receivables were dominated by credit and loan receivables, followed by receivables from financial lease, workout and current factoring. The sector’s profitability improved significantly, and the number of profit-making institutions rose slightly (most of them are involved in workout and lending activities).
In the capital market, turnover of investment service providers increased by 6 percent and the value of client securities rose sharply by 11.3 percent last year. The profitability of investment firms as a sector reached a historical high in 2019, with after-tax profits exceeding the previous year’s by 34 percent. All investment firms complied with capital requirements and the sector’s capital adequacy ratio rose to 22.5 percent.
Assets managed by investment fund managers at the end of 2019 also rose to a record high, growing by 7.5 percent relative to 2018. Investment funds had both a positive yield effect and a net inflow of capital in 2019; however, the value of the latter fell by around 74 percent (by 90 percent in the case of real estate funds) relative to 2018.
In the field of consumer protection in August 2019, the MNB issued resolutions restricting the distribution of contracts for difference (CFD) on a stand-alone basis and, in April, it issued general product intervention resolutions for CFDs and binary options.
Report on insurance, funds, capital market risk and consumer protection
Magyar Nemzeti Bank