EIOPA Risk Assessment Shows Increase in Credit and Market Risks
EIOPA published its risk dashboard based on Solvency II data from the fourth quarter of 2019. This dashboard summarizes the key risks and vulnerabilities in EU insurance sector via a set of risk indicators, complemented with market data and other available information. Solvency II data is based on financial stability and prudential reports collected from 96 insurance groups and 2,837 solo insurance undertakings. Results of the analyses show that risk exposures of the insurance sector in EU increased, as the outbreak of COVID-19 strongly affected the lives of all European citizens with disruptions in all financial sectors and economic activities.
The risk dashboard shows that macro and market risk indicators deteriorated in March 2020, moving from high to a very high level. Financial markets have been characterized by sell-off across asset classes, increased volatility for bond and equity markets, increasing risk premia, and flight to quality investment behavior in March 2020. Credit risk has increased across all asset classes, particularly CDS of government bonds and financial and non-financial corporate bonds, have increased sharply. Liquidity and funding risks have been raised to high level due to potential additional strains on the disposable liquidity of insurers in the medium- to long-term horizon. Liquidity indicators were broadly stable in the fourth quarter of 2019; however, some indicators are expected to worsen, triggered by a possible decrease in premiums and new business, potential increase in claims, and illiquid level of certain assets.
Profitability and solvency risks also increased to high level. Although solvency position of insurers remained relatively stable for the fourth quarter of 2019, profitability and solvency risks are expected to deteriorate, given the double-hit scenario negatively affecting insurers on both asset and liability side. Insurance risks have been also raised to high level. While broadly stable in the fourth quarter of 2019, negative effects via income reduction and increase in claims are expected going forward. Market perceptions of the insurance sector have deteriorated as well. Market developments point to a “double-hit” scenario negatively affecting insurers on both asset and liability side, as tested in previous stress test exercises. Insurers’ external ratings and rating outlooks do not show sign of deterioration as of the end March 2020, though credit quality is expected to deteriorate.
Related Links
Keywords: Europe, EU, Insurance, Risk Dashboard, COVID-19, Market Risk, Credit Risk, Solvency II, Liquidity Risk, Stress Testing, EIOPA
Featured Experts
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous Article
Dubai FSA Updates Several Rulebook ModulesRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
