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.
Keywords: Europe, EU, Insurance, Solvency II, Risk Dashboard, Credit Risk, COVID-19, SCR, Market Risk, Solvency Risk, EIOPA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleSBV Sets Out Key Tasks to be Implemented for Second Half of 2020
FSB finalized the toolkit of effective practices to assist financial institutions in their cyber incident response and recovery activities.
HKMA urged authorized institutions to take early action to adhere to the IBOR Fallbacks Protocol, which ISDA is expected to publish soon.
FSB published a global transition roadmap for London Inter-bank Offered Rate (LIBOR).
HM Treasury published a document that summarizes the responses received from a consultation on the approach of UK to transposition of the revised Bank Resolution and Recovery Directive (BRRD2).
HM Treasury published the government response to the feedback received on the consultation for updating the prudential regime of UK before the end of the Brexit transition period.
In a recent statistical notice, BoE announced publication of the reporting schedule for statistical returns for 2021.
EC welcomed the joint declaration by 25 EU member states on building the next generation of cloud in Europe.
PRA published the final policy statement PS22/20, which contains the updated supervisory statement SS12/13 on counterparty credit risk.
FSB published an update on its work to address market fragmentation. FSB is working in this area in collaboration with the other standard-setting bodies.
EBA proposed revisions to the guidelines on major incident reporting under the second Payment Service Directive (PSD2).