EIOPA published the risk dashboard based on the Solvency II data from the third quarter of 2020. The dashboard uses a set of risk indicators to summarize key risks and vulnerabilities in the insurance sector in EU. The results show that insurers’ exposures to macro risks decreased from very high to high level, while all other risk categories remain at medium level. Going forward, European supervisors expect an increase in credit, market, and underwriting risks over the next 12 months, reflecting concerns over second lockdowns due to the new waves of the pandemic as well as potential cliff effects once fiscal support measures cease to apply.
In addition, the Solvency Capital Requirements (SCR) ratio for insurance group undertakings slightly improved from the second quarter 2020 to the third quarter of 2020, although remaining at lower levels than in the last quarter of 2019. Profitability and solvency risks, along with the liquidity and funding risks, remain at medium level. The results also show that financial markets positively reacted to the COVID-19 vaccine news in the second half of 2020, with market and credit risk indicators stabilizing. However, the potential disconnect between the market performance and the economic outlook remains a concern, as it could result in sharp valuation adjustments. The credit-worthiness of assets in insurers’ portfolios is under close monitoring. Looking ahead, an increasing trend for market and credit risks is expected over the next 12 months due to the high uncertainty and the concerns related to decoupling between financial market performance and economic outlook.
Keywords: Europe, EU, Insurance, Risk Dashboard, Credit Risk, Market Risk, SCR, Solvency II, Liquidity Risk, EIOPA
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