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European Insurance and Occupational Pensions Authority
News article5 October 20233 min read

EIOPA takes stock of inflation’s impact on insurers and assesses potential future risks


The European Insurance and Occupational Pensions Authority (EIOPA) published today a report on how the current inflationary environment impacts insurers in Europe. The analysis considers the effects higher-than-expected inflation and interest rates have had on the insurance sector until now and looks ahead to assess potential future risks and vulnerabilities.

The swift transition from a long period of low inflation and ultra-low rates to a new macroeconomic environment carries implications for insurers’ capital levels, profitability and liquidity positions, but also for consumers. It impacts different lines of business and insurance undertakings to varying degrees based on their exposure to interest-rate sensitive assets such as fixed income securities, the duration gap between their assets and liabilities and the sensitivity of their claims and expenses to inflation. High inflation impacts consumers by eroding the value of their savings, deepens the protection gap and influences financial decisions.

Capital position

High inflation coupled with an increase in interest rates affects insurer’s capital positions through the market-consistent valuation of assets and liabilities and the necessary recalibration of their assumptions about the expected cost of future claims.

Over the past year, European insurers’ assets over liabilities have trended down. However, insurers continued to be well capitalized. With respect to the technical provisions, inflation has negatively impacted non-life insurers as the cost of claims and expenses increased. Although life insurers have been less exposed due to the nominal nature of their liabilities, they may face lower new business and higher lapse rates as inflation weakens households’ ability to save.

A crucial question for insurers going forward is to what extent the positive effect of higher interest rates will compensate the negative effect of higher inflation. EIOPA’s sensitivity analysis points to net positive results for undertakings with long-term liabilities and negative duration gaps such as life insurers. However, the erosion in the real value of payments and higher interest rates might lead to higher lapse rates and a decrease in new business. Non-life undertakings, on the other hand, are forecast not to benefit enough solely from higher rates to counterbalance the negative effects of inflation. Furthermore, the longer the inflationary environment lasts, the more impacted are both life and non-life of business.


The profitability of insurers is vital for the financial stability of the sector. In the short term, claims and expense inflation negatively affects non-life insurers, necessitating increased reserves and gradual premium adjustments. Conversely, life insurers are less concerned with claims inflation in the short term but face reduced profits due to higher expenses caused by inflation. The results show that non-life insurers’ underwriting profitability has deteriorated in 2022 relative to 2021 while the return on investments of life and composite was at the lowest level since 2016.

Looking ahead, future profitability of life business could benefit from reinvestment at higher yields, but insurers might face competitive challenges down the road. As the pass-through of higher rates to policyholders takes place only gradually, consumers might be tempted to consider alternative savings products with higher returns. This shift in consumer behaviors could potentially result in reduced new business as well as higher lapse and surrender rates.


In the current economic landscape, insurers’ liquidity positions come under strain for several reasons. As interest rates rise, the value of liquid assets decreases. When insurers offload these assets, they incur losses and reduce future cash flows. Higher claims costs, policy lapses and potential margin calls on derivates represent additional sources of liquidity risk.

Recent data indicates a deterioration in insurers’ overall liquidity positions during 2022 due to the fall in market value of liquid assets and material cash outflows due to margin payments on derivatives positions. Nevertheless, forward-looking projections show that insurers hold sufficient liquid assets to meet additional margin requirements resulting from further upward movements in interest rates.

Go to the Report


Publication date
5 October 2023