IAIS released a statement in support of the establishment of a Sustainability Standards Board as proposed in the September 2020 IFRS consultation on sustainability reporting. IAIS announced that it stands ready to support this initiative by providing its supervisory expertise. IAIS is also analyzing insurers' investment exposures to climate-relevant economic sectors, with the aim of assessing potential financial stability risks. In addition, IAIS published the global insurance market report, or GIMAR, for 2020. The report discusses the impact of COVID-19 shock on the global insurance sector from a supervisory perspective. High-level results indicate that, despite the considerable volatility in financial markets during the first half of the year, the global insurance sector remained financially and operationally resilient. This resilience was aided by supervisory measures for operational relief and by monetary and fiscal support measures to financial markets in certain regions.
The global insurance market report shows that the most significant prudential impact on the insurance sector was with respect to solvency and profitability, primarily through losses on the asset side. Nevertheless, solvency ratios generally remained well above the jurisdictional requirements. On the liability side, the results vary greatly, depending on the business model. For instance, insurers involved in business lines like travel, event cancellation, business interruption, and pandemic or excess mortality insurance experienced a more significant impact whereas insurers with more diversified portfolios were affected to a lesser extent, as claims in other lines such as motor insurance decreased significantly due lower global economic activity. In terms of liquidity, the data suggest that the impact has been limited, raising no immediate concern on the ability of the insurance sector to fulfil obligations.
However, vulnerabilities remain, given the uncertainties about the duration and impact of the COVID-19 crisis. Thus, IAIS will continue to actively monitor and assess how the insurance sector is affected, through targeted risk assessments involving insurers and supervisors across the globe. To monitor solvency and stability risks from a forward-looking perspective, IAIS is using its data collection to undertake further sensitivity analysis to assess insurance sector vulnerabilities based on various potential future scenarios. The sensitivity of insurers’ asset exposures to risk factors (such as credit loss rates) will be investigated in particular. Future monitoring will focus on key vulnerabilities, which may include:
- The potential for a deterioration in the credit quality of insurers’ fixed-income portfolios, amid concerns about rating downgrades and solvency issues in the real economy.
- The impact of COVID-19 events on insurance claims, including uncertainty around the interpretation of policy wording in some business lines.
- The impact of the deepening of the low-yield environment on life insurers, particularly those writing long-term guaranteed products.
The global insurance market report considered data collected as part of the IAIS’ global monitoring exercise as well as information from the IAIS members on their supervisory responses. The global monitoring exercise was repurposed in 2020 to assess the impact of COVID-19 shock on the solvency, profitability, liquidity, assets, and liabilities of the insurance sector. Individual insurers as well as insurance supervisors participated in the exercise, with 39 jurisdictions participating in the sector-wide monitoring data collection.
Keywords: International, Insurance, GIMAR, COVID-19, Sustainability Standards Board, Global Monitoring Exercise, Solvency Ratio, Solvency Capital Requirement, ESG, Climate Change Risk, IFRS, IAIS
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Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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