The average solvency ratio of Finnish earnings-related pension providers decreased to 126.9 per cent, as at the end of 2022, according to the Financial Supervisory Authority.

This represents a 1.3 percentage point fall in the last quarter of the year, with the solvency ratio standing at 128.2 per cent at the end of September.

Pension providers’ solvency ratio is calculated by dividing pension assets by technical provisions.

According to Finnish Pension Alliance (Tela) analysis of Financial Supervisory Authority data, pension insurance companies’ average solvency ratio had been increasing since 2018.

It rose from 124.6 per cent in 2018 to 135.8 per cent in 2021, before falling in to 126.6 per cent at the end of 2022.

Company funds and industry-wide funds recorded an average solvency ratio of 141.2 per cent at the end of 2022.

As defined in the reports of the Financial Supervisory Authority, earnings-related pension providers comprise private-sector pension insurers, i.e. pension insurance companies, company pension funds and industry-wide pension funds.

“The most significant downturn in the solvency ratio occurred in 2008, when the global financial crisis had its strongest impact on pension assets,” Tela noted.

“The sharp decline in the net asset value of investments also led to a reduction in the market value of earnings-related pension assets.

“To avert the situation where pension providers’ investment assets would have had to be sold at a loss in order to reduce risks and increase solvency, the provisions on investment activities and solvency were temporarily amended.

“Thus, pension providers’ solvency was supported in 2008 by a transfer from the liquidity buffer of non-funded pensions, i.e. from the provision for pooled claims. The transfer was in use until the end of 2012.”

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