Economy 30 August 2019, 4:51pm

Hungarian insurers excel, life segment not so much

Portfolio

Hungary’s insurance sector posted 275 billion forints worth of premium income in the second quarter of 2019, 9.6% more than in Q2 last year. The non-life segment recorded a 17.5% year-on-year premium income growth (partly because the accident tax was incorporated into the premium), whereas the life segment continued to fare poorly; its premium income edged up by only 1.6% yr/yr, although this time the regular premiums turned out well.

The National Bank of Hungary (MNB) has released the prudential data for Hungarian insurers’ second-quarter and first-half performance on Friday. These show HUF 17.4 bn after-tax profit for Q2 and HUF 39.6 bn for H1. Both figures are slightly behind the base period’s respective prints. As regards profit generation, the life segment was the stronger in the second quarter. Technical income in the former totalled HUF 6.7 bn, versus HUF 3.0 bn in the non-life segment. However, in the first half of the year, non-life had HUF 16.1 bn income, beating the life segment’s HUF 12.5 bn. From the point of view of premium income, i.e. the size of the market, the non-life segment, and particularly the mandatory third-party liability car insurance (KGFB) was the engine of growth. The non-life segment - in part due to the incorporation of the accident tax into the premium - expanded by 17.5% in Q2, whereas the life segment grew by only 1.6%. The meagre growth was the consequence of a nearly 11% contraction of single premium payments, while the premium income from regular premium life insurances went up 6.5%. Non-life premium income in H1 was up 17.5% yr/yr, vs. 6.3% increase in the life segment. The MNB has also added a flash analysis to the data it published. Here are the highlights of this:

At the end of Q2, the total contract portfolio of insurance companies was 3.8% higher than its level a year earlier.
This reflected an increase of more than 510,000 in new contracts, mainly as the result of a 4.5% increase in the number of non-life insurance contracts, while the number of life insurance contracts remained practically unchanged (showing a 0.3% increase). As a result, the total number of insurance contracts exceeded 14.1 million at the end of Q2.
At sector level, the number of both life and non-life insurance contracts rose modestly (by 0.2% and 1.5%, respectively) in Q2 relative to the previous quarter.
the stock of contracts rose by nearly 3.8% yr/yr by the end of June;
the rise stemmed from 510,000 new contracts, mainly relating to a 4.5% increase in the number of contracts in the non-life segment, as there was practically no change in the life segment (+0.3%);
the jump in non-life premium income in Q2 is relating to the abolishment of the accident tax and the fact that as of 1 January 2019 the insurance tax is applicable also on the mandatory third-party liability car insurance (with a rate of 23%) that is payable as part of the KGFB premium.
The sharp increase in non-life premium income reflected the fact that instead of the accident tax, which was meanwhile phased out, from 1 January 2019 the insurance tax replaced the previous accident tax in case of motor third party liability insurance (at a tax rate of 23%), which is payable as part of the insurance premium, and this is reflected in the increase in premium income in Q2.
Quarterly premium income fell by more than 13% relative to the previous quarter, reflecting decreases of 4.6% and more than 19% in life and non-life insurance premium income, respectively.
The capital adequacy ratio calculated at sector level, aggregated from the individual data and reported under the Solvency II risk-based solvency capital requirement effective from 2016, was 223.0% in 2019 Q2. This reflected an increase of 7.1 percentage points relative to the same period of 2018 and a decline of 1.6 percentage points relative to the previous quarter.
At the end of 2019 Q4, assets (investments) linked to insurance contracts managed by insurance companies continued to be dominated by three asset categories: government bonds (50.9%), collective investment undertakings (34.6%) and equities (4.0%), as seen in 2019 Q1 (51.1%, 33.9% and 4.0%, respectively).
Compared to data from a year earlier, the composition barely changed: the share of government bonds rose slightly (by 1.4 percentage points) and that of collective investment undertakings fell by 0.1 percentage points.
At the end of 2019 Q2, 97.1% of government bonds were recorded as Hungarian government bonds. This was equal to the level at the end of 2019 Q1, but reflected a slight decline compared to its level a year earlier (97.1% and 97.3%, respectively).
However, analysing the underlying assets behind the contract types individually, government bonds continue to account for a dominant share within assets linked to non-unit-linked insurance policies with 78.3% of total investments, as seen in the same period a year earlier and the previous quarter. By contrast, collective investment undertakings account for the overwhelming majority of assets linked to unit-linked insurance policies (69.9%), showing an upward trend, as seen in earlier periods.
From 2019 Q2, the time series has been expanded with a new data content relating to the breakdown of distribution mix of new contracts. Insurance companies’ new contracts concluded in 2018 - same as in 2017- show that agents (at 51.4% and 54,1%, respectively) account for a dominant share within regular-premium contracts in the life business both in terms of the number of contracts and the total amount of expected volume of premium,
while in the non-life business sales via independent insurance intermediary (at 58.5% and 62,0%, respectively) are dominant.
Within single-premium contracts, credit institutions and the universal postal service (at 76.6% and 71.1%, respectively) are dominant in terms of the number of life insurance contracts and premium income,
while other channels (at 38.8%) and independent insurance intermediary (at 44.8%) dominate the number of contracts and premium income of non-life business, respectively, as seen also in the previous year.