EIOPA Updates Risk Dashboard in August 2020
EIOPA updated its risk dashboard based on Solvency II data for the first quarter of 2020. The dashboard summarizes key risks and vulnerabilities in the insurance sector in EU through a set of risk indicators. Solvency II data is based on financial stability and prudential reports collected from 81 insurance groups and 2,488 solo insurance undertakings. The results show that risk exposures of the insurance sector in EU remain generally high compared to April, as a result of the COVID-19 outbreak. The pandemic continued to cause disruptions in all financial sectors and economic activities, with insurers being particularly exposed to very high levels of macro risk. Market, credit, and profitability and solvency risks are also at a high level.
Credit risk remains high, as the risk of credit events remains elevated going forward. Profitability and solvency risks also remain high. and the expected deterioration, subsequent to the COVID-19 impact, is already reflected in some indicators. Asset over liabilities and Solvency Capital Requirement (SCR) ratios for groups and non-life solo registered a weakening. Asset over liabilities and SCR ratios for groups and non-life solo registered a weakening. Furthermore, the break in the sample due to the Brexit withdrawal agreement might distort a larger deterioration for some indicators. The unforeseen increase observed in the SCR life solo is principally driven by the adjustment in the sample after excluding UK companies. Moreover, a positive impact in the SCR life ratio was reported for some specific undertakings due to the increase in the volatility adjustment (VA). A further deterioration for next quarter is still foreseen for SCR ratios, both life and non-life, mainly driven by the low yield environment and possible depreciation of assets in the context of the COVID-19 shock.
Insurance risks decreased to medium level. On one hand, year-on-year premium growth for life undertakings significantly declined indicating already a negative impact from the COVID-19 outbreak. On the other hand, year-on-year premium growth for non-life undertakings and loss ratio show a slight improvement. Catastrophe loss ratio continues to increase following the significant events that occurred during 2019 and 2020—namely, the Australian bushfire season. Market perceptions remained stable at a medium level. Stocks of life and non-life insurance undertakings continued to underperform relative to the market, which, in contrast, experienced an unexpected increase. Insurers’ Credit Default Swap (CDS) spreads returned to lower level, with insurers’ external outlooks showing a net increase in negative revision as of June 2020.
Some indicators used in this risk dashboard do not still completely capture the latest development in the context of the COVID-19 outbreak; however, the expected deterioration of the relevant indicators reflecting all available information in a forward-looking perspective has been considered in the assigned risk levels, where possible. Expert judgment has been applied in credit and profitability and solvency risk categories.
Related Links
Keywords: Europe, EU, Insurance, Solvency II, Risk Dashboard, Credit Risk, COVID-19, SCR, Market Risk, Solvency Risk, EIOPA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Cassandra Hannibal
IFRS 17 subject matter expert; actuary; risk management and capital projection specialist
Previous Article
EBA Sets Out Questionnaire for Study on Compliance Cost of ReportingNext Article
DNB Announces Several Reporting Updates in June 2020Related Articles
EBA Sets Out Work Priorities and Deliverables for 2021
EBA published its annual work program for 2021. The work program describes the activities and deliverables for the coming year in the context of the six key strategic areas of work.
PRA Proposes to Amend SS11/13 on Internal Ratings-Based Approaches
PRA is proposing, via the consultation paper CP14/20, to introduce two complementary expectations on the level of mortgage risk-weights in UK for banks applying the internal ratings-based approaches.
ECB Confirms Compliance of €STR with Financial Benchmark Principles
ECB published its statement of compliance with the IOSCO principles for financial benchmarks developed by IOSCO.
OSFI Updates Timelines for Implementation of IFRS 17
OSFI updated the timelines for implementation of IFRS 17 on insurance contracts.
IFRS Consults on Global Approach to Sustainability Reporting
IFRS launched a consultation to assess the demand for global sustainability standards.
EIOPA Sets Out Work Priorities for 2021-2023
EIOPA has set out the work priorities for 2021-2023, taking into account the current market situation in light of the COVID-19 pandemic.
US Agencies Finalize Three Interim Final Rules Issued Amid Pandemic
US Agencies (FDIC, FED, and OCC) finalized three interim final rules that were published in March and April this year to ease the impact of disruptions caused by the COVID-19 pandemic.
US Agencies Finalize Interim Final Rules Issued Amid Pandemic
US Agencies (FDIC, FED, and OCC) finalized two rules, which are either identical or substantially similar to the interim final rules in effect and issued earlier this year.
APRA Proposes to Increase Transparency of Banking Data
APRA announced that it is resuming consultation on the confidentiality of data submitted to APRA by the authorized deposit-taking institutions.
EIOPA Consults on Use of Risk Mitigation Techniques Under Solvency II
EIOPA is consulting on a supervisory statement on the use of risk mitigation techniques by insurance and reinsurance undertakings.
