The European Insurance and Occupational Pensions Authority (EIOPA) published today its Insurance Risk Dashboard, which shows that insurers’ exposures to macro risks are currently the main concern for the sector. Risk levels remain broadly constant, with all risk categories pointing to medium risks with the exception of macro risks.
Macro-related risks remain among the most relevant for the insurance sector. Forecasted GDP growth at the global level further increased to 0.74% and CPI forecasts slightly decreased to 3.22% for the next four quarters. Credit risks are at medium level, with credit default swap (CDS) spreads increasing for financial secured bonds in the second quarter of 2023 and receding slightly for other fixed income market segments. Market risks decreased from high to medium level as volatility in equity market decreased.
Liquidity and funding risks show an increase in cash holdings but also a decline in the liquid assets ratio in the first quarter of 2023. Profitability and solvency risks show a reduction in the investment return for life insurers in 2022 compared to 2021 mainly due to the large increase of unrealized losses following the increase of interest rates. The median of the Solvency Capital Requirement (SCR) ratio for insurance groups decreased in the first quarter of 2023. Similarly, life insurers reported a slight decline in the median SCR ratio. Interlinkages and imbalances risks remain at a medium level while insurance risks decreased in the first quarter of 2023, with the median year-on-year premium growth for non-life insurance decreasing to end of 2021 levels.
Market perceptions show positive returns for insurance stocks but point to an underperformance of life insurance stocks when compared to the market for the second quarter of 2023.
ESG related risks indicate an increasing trend as the median exposure towards climate relevant assets slightly increased to 3.3% of total assets in the first quarter of 2023 and the catastrophe loss ratio further deteriorated. The share of insurers’ investments in green bonds over total green bonds outstanding is stable compared to the previous quarter.
Digitalization and cyber risks show an upward trend after supervisors assessed that the materiality of these risks for insurers increased in the first half of 2023. The frequency of cyber incidents impacting all sectors of activity, as measured by publicly available data, increased compared to last year. The indicator on cyber negative sentiment decreased in the second quarter of 2023.
This Insurance Risk Dashboard, based on Solvency II data, summarises the main risks and vulnerabilities in the European Union’s insurance sector through a set of risk indicators of the first quarter of 2023 and end-2022. The data is based on financial stability and prudential reporting collected from 96 insurance groups and 2103 solo insurance undertakings. The Solvency II information is complemented with market data with cut-off date end-June 2023.
- Publication date
- 31 July 2023