Life insurances decline in Hungary, insurers save what they can by raising prices

According to data released by the National Bank of Hungary (MNB) on Tuesday,

• the premium income of the life insurance business increased by only 1.0% to HUF 153 billion,
• the premium income of the non-life insurance business by 12.9% to HUF 305 billion,
• and the premium income of the total insurance market by 8.6% to HUF 458 billion

in the first quarter of the year. While the two segments were roughly equal a year ago,

the ratio has now shifted to two-thirds to one-third in favour of non-life insurance.

Behind the weak performance of the life insurance market was a further decline in single premium life insurance premiums and case deposits, as while

• regular premiums rose by 11.7%,
• single premiums fell by another 21.6%
• and case deposits fell by 20.7%

compared to a year earlier. The explanation is simple: the profit content of single-premium life insurance policies has been eroded for most insurers by the replacement tax introduced in mid-2022 and increased at Christmas of that year, and shorter-life savings have been negatively affected by the 13% social contribution tax introduced in the middle of last year. Most insurers have therefore prioritised long-term savings in their sales, with

the number of policies for single-premium life insurance policies in force falling from 262,000 to 206,000 in two years.

Among the latter, pension insurance policies entitled to a 20% tax reduction on premiums continue to occupy a prominent place, with the number of policies increasing by 7,800 to over 493,000 in the first quarter. While

• premium income from pension insurance rose by 17.6% to HUF 35 bn
•  
• and from risk and other life insurance by 14.9% to HUF 31 bn over the year,
•  
• premium income from non-tax-advantaged unit-linked products fell by 5.4% to HUF 71 bn
•  
• and from mixed life insurance by 19.2% to HUF 15.6 bn.

As a result,

the share of pension insurance in terms of premiums written has now increased to 23% of the life insurance market, mainly at the expense of mixed life insurance.

In parallel, on the non-life insurance side, we see a steady increase in premium income: the total premium income of

• the housing insurance portfolio, which was also covered by the March housing insurance campaign, increased by 19.2%,
•  
• casco insurance by the same amount,
•  
• and compulsory motor third-party liability insurance (KGFB) by 12.3%, of which

the increase in average premiums in the KGFB market accounted for roughly 11%,

according to the latest MNB KGFB index.

(According to recent data from the MNB, the number of non-life insurance contracts increased by 894,000 in three months to 13.6 million, including single-premium residential property insurance policies, which increased by 805,000 to 811,000. As the preliminary results of the March home insurance campaign do not explain this change, Portfolio inquired about the matter at the MNB. The central bank replied on 5 June, after the publication of our article, that "The increase in the time series for other residential property insurance in the time series for home insurance can be attributed to one insurer, due to a gift contract/service offered to customers." Based on the size of the portfolio, we are guessing a special offer from Alfa Insurance.)

While last year's figures already showed that insurers already bear a special tax burden of more than HUF 210 billion per year, there is little room for improvement in profitability. One of the few adaptation options is to hold on to bonds bought in high-yield environments (as we saw in the case of CIG Pannónia, a listed company), and within the insurance business, to reduce the loss ratio (i.e. the loss/premium ratios). The most obvious way to do this is by raising premiums, for which

the possibility of roughly inflation-linked premium increases (indexation) will come in handy for insurers this year, and could be a means of improving the market's results in 2024.

Signs of this can be seen in the fact that while non-life insurance premium income rose by HUF 35 billion in the first quarter compared to a year earlier, their net claims expenditure increased by "only" HUF 6 billion.

The technical result of the non-life insurance business increased from HUF 5.4 billion to HUF 17.9 billion in the first quarter, thanks to a higher increase in premium income than claims expenditure. Meanwhile, life insurance results stagnated at HUF 4.4bn, and

the forthcoming Ethical 2.0 concept of the National Bank of Hungary poses further risks to the business line's profitability outlook.

Thanks to the improvement in the non-life insurance business,

insurers achieved an adjusted profit of HUF 16.2 billion in this first year,

up from HUF 7.1 billion a year earlier, according to the MNB.

Last year the sector made a profit of HUF 21 billion for the year as a whole, so three quarters of this has already been achieved in the first three months, while the summer season, with its usual higher claims payments (storm- and drought-related), is still ahead.