MNB decree reduces the technical interest rates of the life insurance 16 October 2020
According to a recent decree of the Hungarian National Bank (MNB), the technical interest rate on so-called traditional - i.e. not unit-linked - forint-based life insurance products will be reduced from 2.3 to 1.8 percent for the new contracts concluded from 1st of January 2021. For euro-based products this interest rate will be decreased from 1.1 to 0.6 percent. The insurance product which does not meet the requirement of the new MNB regulation can be distributed until 31st of December 2020. The technical interest on the previously concluded life insurance policies is not affected by this amendment.
The technical interest rate is a rate of interest used by the insurance company when calculating the premiums and premium reserve for life and sickness insurance policies, and benefit payment reserve for accident and liability insurance policy. The technical interest rate significantly influences the pricing of the life insurance products. The insurance benefit calculated with the applicable technical interest rate shall be paid out by the insurer and the technical interest shall be credited to the clients by the insurance company, even if the actual yield is lower (thus technical interest functions as a guaranteed interest). Therefore, although a stipulated higher technical interest rate may make the product more attractive on the market, it can also give rise to risks in the prudent operation of insurance undertakings. Hence, to avoid excessive yield guarantees from insurance companies, the legislator maximizes the technical interest rate by law.
The new technical interest rates under the MNB regulation are adjusted to the decline on the yields of the long term, even up to 15-20 years, government securities in recent years. The change in the technical interest rate was decided by the MNB based on a preliminary consultation with the representative organisations of the insurance market. The aim of the amendment, also declared by the MNB, is to strengthen financial stability, so in the future insurers cannot promise excessive yields to their clients at the risk of their own financial situation.
In case of unit-linked insurances no technical interest is determined, although insurers may also provide capital or yield guarantees. The measure of the achieved yield depends on the change of the exchange rate at the current year of the investment chosen by the client.Back to news
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