Featured Product

    EIOPA Report Outlines Key Financial Stability Risks for Insurers

    December 18, 2019

    EIOPA published the financial stability report, outlining the key financial stability risks of the insurance and occupational pensions sectors in the European economic area. The key trends include the risk of prolonged low-yield environment, concerns over debt sustainability and stretched valuations across financial markets, and emerging cyber and climate-change-related risks. The report includes two thematic articles, with one focusing on a climate risk assessment of the sovereign bond portfolio of European insurers and the other on the impact of variation margins on liquidity of EU insurers.

    Overall, the insurance sector remains well-capitalized but the interest rates reached record lows in August 2019 and an increasing number of EU countries now observe negative yields, even at longer maturities. This low-for-long environment has significant consequences for the business models of insurers and pension funds, putting pressure on both the capital position and long-term profitability. The low long-term interest rates directly affect the capital position of insurers and pension funds with nominally guaranteed liabilities and the low-yield environment makes it increasingly challenging for insurers and pension funds to meet the promises and guarantees made in the past. Thus, EIOPA continues to see the clear benefits of Solvency II, as the market-consistent and risk-based regulatory framework has helped price in the risk, build resilience, and enhance the risk management practices of insurers. The report also stresses the importance of continued robustness of the regulatory framework to adequately reflect the risks faced by insurers in a low-for-long environment. Thus, it is crucial that these elements are addressed in the ongoing Solvency II review to ensure that promises can continue to be met in the future.

    Additionally, cyber and climate-change risks continue to demand attention from insurers, pension funds, and supervisors alike. Insurers and pension funds are increasingly susceptible to cyber risks as the digital transformation continues, while also bringing new opportunities for insurers in the form of cyber underwriting. However, ensuring the sound provision of cyber insurance in Europe requires good quality data on cyber incidents and appropriate cyber risk management tools. From supervisors, this requires increased attention for potential non-affirmative coverages, accumulation risk and the potential system-wide impact of cyber incidents. Regarding climate-change risks, insurers and pension funds can play a key role in the transition toward a low-carbon economy as major institutional investors, but this transformation carries significant investment risks as well. Therefore, it is crucial that both insurers and pension funds actively incorporate climate change risks in their own risk management frameworks. Climate change can also have a significant impact on the liabilities of non-life insurers and reinsurers, as extreme weather related events become more frequent and severe.

    Next year, EIOPA will build further on the work done in this area so far. It will perform a sensitivity analysis on the investments of European insurers to assess transition risks and potential misalignment with the Paris agreement climate goals and will continue to work on methodologies for climate change stress testing to be used in the future stress test exercises. Analyzing the potential impact of climate change is challenging and requires close cooperation between different fields of academia, economics, policymakers, and financial regulators. In this respect, the thematic article on the impact of climate change on the sovereign bonds portfolio of insurers included in this report provides a great example of this cooperation. EIOPA looks forward to enhancing this cooperation even more going forward to ensure that new emerging risks are incorporated into supervisory frameworks.


    Related Links

    Keywords: Europe, EU, Insurance, Pensions, Financial Stability Report, Cyber Risks, Solvency II, Stress Testing, EIOPA

    Featured Experts
    Related Articles

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News

    DNB Publishes Multiple Reporting Updates for Banks

    DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.

    February 28, 2023 WebPage Regulatory News

    NBB Sets Out Climate Risk Expectations, Issues Reporting Updates

    The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting

    February 24, 2023 WebPage Regulatory News

    EBA Updates Address Securitization Standards and DGS Guidelines

    The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.

    February 21, 2023 WebPage Regulatory News

    FSB Publishes Letter to G20, Sets Out Work Priorities for 2023

    The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023

    February 20, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8793