Author information:
Zsuzsanna Bártfai-Bora: Magyar Nemzeti Bank, Actuary. E-mail: borazs@mnb.hu
Ádám Huszárik: Actuary. E-mail: adam.huszarik95@gmail.com
Norbert Holczinger: Magyar Nemzeti Bank, Head of Division. E-mail: holczingern@mnb.hu
Abstract:
It has been more than five years since the introduction of the Solvency II framework (S2), which determines how insurers should operate in Europe, and this allows for a detailed analysis of Hungarian developments. The new approach in S2 that makes it similar to banking regulation, including the market-consistent valuation principles and the application of a risk-based capital requirement, has stood the test of time in recent years: the various shocks did not undermine the stability of the Hungarian sector. This was largely due to the recommendation of the central bank of Hungary (Magyar Nemzeti Bank, MNB) on holding a volatility capital buffer. This is because the robust capital position of the sector as a whole has been maintained in the context of 50–100-basis point reductions in capital adequacy levels in certain individual cases, which justifies the use of the capital buffer. The balanced capital position was also influenced by the conservative investment strategy, which resulted in one of the lowest market risk exposures in Europe, against the backdrop of huge government securities holdings, even by international standards.
Cite as (APA):
Bártfai-Bora, Z., Huszárik, Á., & Holczinger, N. (2022). Stability versus Volatility: Hungarian Experiences with the First Five Years of Solvency II Regarding Quantitative Elements. Financial and Economic Review, 21(2), 66–93. https://doi.org/10.33893/FER.21.2.66
Column:
Study
Journal of Economic Literature (JEL) codes:
G22, G29, G32
Keywords:
Solvency II, capital adequacy, own funds, capital requirement, volatility capital buffer
References:
Balog, D. (2017): Capital Allocation in the Insurance Sector. Financial and Economic Review, 16(3): 74-97. https://doi.org/10.25201/FER.16.3.7497
Bora, Zs. – Engler, K. – Holczinger, N. – Jakab, J. – Merész, G. – Nagy, K. – Zubor Z. (2015): Mit hoz a Szolvencia II a hazai biztosítási szektor számára? – Az MNB 2014-ben végzett mennyiségi hatástanulmányának eredményei (What does Solvency II bring for the Hungarian insurance sector? – Results of the quantitative impact study conducted by the MNB in 2014). Biztosítás és Kockázat (Insurance and Risk), 2(1): 34–53. https://mabisz.hu/wp-content/uploads/2018/08/biztositas-es-kockazat-2-evf-1-szam.pdf
Bora, Zs. – Holczinger, N. – Nagy, K. – Merész, G. (2016a): The insurance sector at a milestone: positive initial experiences with the newly introduced Solvency II system. Financial and Economic Review, 15(4): 88–114. https://en-hitelintezetiszemle.mnb.hu/letoltes/zsuzsanna-bora-norbert-holczinger-koppany-nagy-gabriella-meresz.pdf
Bora, Zs. – Holczinger, N. – Merész, G. – Velcsov, G. – Zubor, Z. (2016b): Az utolsó felkészülési célú Szolvencia II mennyiségi hatástanulmány eredményei (The results of the last preparatory Solvency II quantitative impact study). Biztosítás és Kockázat (Insurance and Risk), 3(1): 14–35. https://doi.org/10.18530/BK.2016.1.14
Dénes, B. – Dobner, A. – Erdős, M. – Nagy, K. – Somogyvári Sándorné – Szebelédi, F. – Vizi, T. (2014): A biztosításfelügyelés változásai az Európai Unióhoz való csatlakozás tükrében (Changes of the insurance supervision in the light of European Union accession). Biztosítás és Kockázat (Insurance and Risk), 1(1): 10–21. http://real-j.mtak.hu/6110/1/biztositas-es-kockazat-1-evf-1-szam.pdf
EC (2015): Solvency II Overview – Frequently asked questions. https://ec.europa.eu/commission/presscorner/detail/fr/MEMO_15_3120. Downloaded: 9 December 2021.
EIOPA (2020): Report on Long-Term Guarantees Measures and Measures on Equity Risk 2020. https://www.eiopa.europa.eu/sites/default/files/publications/reports/eiopa-bos-20-706-long-term-guarantees-ltg-report-2020.pdf. Downloaded: 11 December 2021.
EIOPA (2021a): European Insurance Overview 2021. https://www.eiopa.europa.eu/document-library/insurance-overview-report/european-insurance-overview-2021_en. Downloaded: 9 December 2021.
EIOPA (2021b): Financial Stability Report July 2021. https://www.eiopa.europa.eu/document-library/financial-stability-report/financial-stability-report-july-2021. Downloaded: 9 December 2021.
EIOPA (2021c): Technical documentation of the methodology to derive EIOPA’s risk-free interest rate term structures. https://www.eiopa.europa.eu/sites/default/files/eiopa-bos-21-475-technical-documentation.pdf. Downloaded: 11 December 2021.
EIOPA (2021d): EIOPA statistics on own funds. https://register.eiopa.europa.eu/_layouts/15/download.aspx?SourceUrl=https%3A//register.eiopa.europa.eu/Publications/Insurance Statistics/SA_Own_Funds.xlsx. Downloaded: 10 March 2022.
EP (2009): Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) Volume 52, L335. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX%3A32009L0138&from=EN
EU (2014): Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), 10 October 2014. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX%3A32015R0035&from=EN
Hanák, G. (2014): Szolvencia II ante portas: A Szolvencia II kérdésének körüljárása – kevéssel a bevezetés előtt (Solvency II ante portas: Examining the issue of Solvency II just before the introduction). Biztosítás és Kockázat (Insurance and Risk), 1(1): 22–33. http://real-j.mtak.hu/6110/1/biztositas-es-kockazat-1-evf-1-szam.pdf
JPMorgan (2019): Solvency II ratios and the volatility challenge. https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/institutional/investment-strategies-/insurance/PI-SOLVRATIO.PDF. Downloaded: 10 March 2022.
Kočović, J. – Koprivica, M. – Paunović, B. (2017): Initial effects of Solvency II implementation in the European Union. Ekonomika preduzeca, 65(7–8): 436–452. https://doi.org/10.5937/EKOPRE1708436K
Lencsés, K. (2015): What lies ahead for insurance companies? Review of the V. International Insurance Conference of the Association of Hungarian Insurance Companies (MABISZ). Financial and Economic Review, 14(1): 236–240. https://en-hitelintezetiszemle.mnb.hu/letoltes/20-lencses-en.pdf
MNB (2015): Report on Financial Stability. May 2015. Magyar Nemzeti Bank. https://www.mnb.hu/letoltes/financial-stability-report-may-2015-1.pdf. Downloaded: 10 March 2022.
MNB (2016): Magyar Nemzeti Bank 6/2016. (VI.14.) számú ajánlása a folyamatos tőkemegfelelést biztosító volatilitási tőkepuffer tartásáról (MNB Recommendation No 6/2016 (VI. 14.) on holding the volatility capital buffer ensuring continuous capital adequacy). Magyar Nemzeti Bank. https://www.mnb.hu/letoltes/6-2016-ajanlas-volatilitasi-tokepuffer.pdf. Downloaded: 9 December 2021.
MNB (2020a): Report on Insurance, Funds, Capital Market Risks and Consumer Protection. Magyar Nemzeti Bank. https://www.mnb.hu/letoltes/kocka-zati-jelente-s-2020-eng-1001.pdf. Downloaded: 10 March 2022.
MNB (2020b): Vezetői körlevél: Az MNB által továbbra is elvárt intézkedések az osztalékfizetés és javadalmazási politika kapcsán (Executive circular: Measures continued to be expected by the MNB regarding dividend payments and remuneration policies). Magyar Nemzeti Bank. https://www.mnb.hu/letoltes/vezetoi-korlevel-az-mnb-altal-tovabbra-is-elvart-intezkedesek-az-osztalekfizetes-es-javadalmazasi-politika-kapcsan.pdf. Downloaded: 10 March 2022.
MNB (2021): Report on Insurance, Funds, Capital Market Risks and Consumer Protection. Magyar Nemzeti Bank. https://www.mnb.hu/letoltes/kocka-zati-jelente-s-2021-eng-1220.pdf. Downloaded: 10 March 2022.
OECD (2021): OECD Insurance Statistics 2020. OECD Publishing, Paris. https://doi.org/10.1787/adfe5566-en
Richard, M.-L. (2020): Insurers and the Solvency II compliance challenge. BNP Paribas. https://securities.cib.bnpparibas/insurers-and-the-solvency-ii-compliance-challenge/.Downloaded: 10 March 2022.
Szedlák, K.V. (2015): A biztosítási tevékenységről szóló 2014. évi LXXXVIII. törvény bemutatása (Presenting Act LXXXVIII of 2014 on the Insurance Business). Biztosítás és Kockázat (Insurance and Risk), 2(1): 12–21. https://mabisz.hu/wp-content/uploads/2018/08/biztositas-es-kockazat-2-evf-1-szam.pdf
Zubor, Z. (2016): Volatility capital buffer to prevent the breach of the Solvency II capital requirements. Financial and Economic Review, 15(1): 91–123. https://en-hitelintezetiszemle.mnb.hu/letoltes/5-zubor-1.pdf