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MNB to lower cap on interest guaranteed by life insurances

A fresh decree of the National Bank of Hungary (MNB) will lower the cap set on the so-called technical interest paid to clients on traditional life, pension-, health, and annuity insurance contracts signed from January 2021, the bank announced today, according to a report by state news wire MTI.

The technical interest is the interest insurers guarantee to pay to clients annually on these products. There is no such regulated interest/yield in the case of unit-linked insurance products.

The maximum technical interest for the forint-based insurance products will drop to 1.8% from 2.3% at present and the maximum for euro-based products will drop to 0.6% from 1.1%.

The reduction will not affect existing contracts.

MNB said it adjusted the technical interest rates to the drop that took place in the long-term government security yields both on forint-denominated and eurozone bonds through the move. The aim is to reinforce the long-term safe operation of the insurance market by preventing insurers from making "excessive, eventually irresponsible" interest promises to clients.

It noted that most insurers undertake in contracts to pay the majority - typically 80-90% - of any yield achieved in the given year beyond the technical interest.

MNB said it had consulted the professional organization of the insurance trade before the change.

The technical interest last changed by July 1, 2016.