EIOPA Assesses Insurance Sector Risks Based on Q2 Solvency II Data
EIOPA updated the risk dashboard based on Solvency II data for the second quarter of 2020. The dashboard, which is based on data from 98 insurance groups and 2,507 solo insurance undertakings, summarizes the key risks and vulnerabilities in the insurance sector in EU through a set of risk indicators. For the first time, this risk dashboard also includes a forward-looking element to reflect the expected developments and capture potential distress in the insurance sector for all the risk categories. Based on the data, EIOPA concluded that insurers in EU are slightly less exposed to risks, when compared to the beginning of COVID-19 outbreak, but concerns remain. Going forward, an increasing trend for credit risks and market risks, is expected over the next 12 months.
Overall, the results show that the risk exposures of the insurance sector in EU slightly reduced, compared to July risk assessment. However, insurers are exposed to very high levels of macro risk, while market, credit, profitability, and solvency risks decreased to medium level. this risk assessment does not account for the outbreak of the second wave of the pandemic. With regard to macro risk, Gross Domestic Product (GDP) growth forecasts at the end of September show the strongest expected decline in the last quarter of 2020 and first recovery in the second quarter of 2021. The effects of the new wave of the pandemic might skew further downward GDP growth. Profitability and solvency risks decreased to medium level. Solvency Capital Requirement ratio for groups slightly improved from the first quarter of 2020 to the second quarter of 2020, though remaining at lower levels than the fourth quarter of 2019. All half-year profitability indicators, which now include the first months of the COVID-19 crisis and their impact on financial returns, show the expected signs of deteriorations.
The stabilization of the financial markets at the end of the third quarter 2020 partially eased the challenging situation for European insurers: market and credit risk indicators had stabilized at the end of September 2020. The price gap between stocks and the economic outlook remain a concern, as it could result in sharp valuation adjustments. The creditworthiness of the assets in insurers’ portfolios is under close monitoring. The outlook of those risk categories reflects information available until the third quarter 2020. Insurance risks remain at medium level, driven by general concerns over decrease in premium growth and in some member states over reserve adequacy. More specifically, year-on-year premium growth for life reported a significant deterioration for the second consecutive quarter, indicating a negative impact from the COVID-19 outbreak. While market perceptions exhibit a decreasing trend, they are still at a medium level.
Related Links
Keywords: Europe, EU, Insurance, Risk Dashboard, Solvency II, SCR, Credit Risk, Market Risk, EIOPA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Cassandra Hannibal
Life insurance actuary; risk management and economic capital specialist
Jerome Ogrodzki
Insurance asset and liabilities modeling specialist; stochastic modeling expert
Related Articles
EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
MAS Amends Notice on Related Party Transactions of Banks
MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.
ECB Amends Guideline on Euro Short-Term Rate
ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.
EBA Consults on Standards Related to FRTB-SA
EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).
PRA Proposes Rules Related to IRB Approach for Credit Risk
PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.
BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK
The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.
FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks
FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.
OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks
OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.
EU Amends CRR and Securitization Regulation in Response to Pandemic
To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).
HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26
HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.
