Today the European Insurance and Occupational Pensions Authority (EIOPA) has published a Supervisory Statement on the impact of the ultra-low/negative interest rate environment.
This environment is significantly impacting the insurance sector in the EU, in terms of asset allocation, reinvestment risk, profitability and solvency. It constitutes one of the most important sources of systemic risk for insurers for the coming years.
This statement is addressed to the supervisory community and the insurance industry. Its aim is raising awareness and ensuring that the insurance sector continues to be financially resilient. It also seeks to inform consumers and policyholders about supervisory measures and actions taken to protect their interest.
EIOPA encourages national supervisory authorities (NSAs) and undertakings in the EU to continue taking actions to mitigate the impact of the ultra-low/negative interest rate environment on the EU insurance sector.
In the short-term, EIOPA recommends that:
- NSAs should intensify the monitoring and supervision of insurers identified as facing greater exposure to the low interest rate environment;
- NSAs should engage into a dialogue with undertakings to explore actions they could take to improve their financial resilience;
- Within the context of improving financial resilience and in particular sound capital planning, undertakings should exercise caution in distributing dividends and NSAs should consider whether it is necessary to restrict the distribution of dividends;
- NSA and undertakings should pay special attention on pre-emptive recovery and resolution planning to reduce the likelihood and impact of insurance failures; and
- NSAs should broaden the analysis of the low interest rate environment and also consider the potential build-up of systemic risk.
In the medium- to long-term, NSAs should identify whether there are any tools or powers missing in their current toolkit. Where a gap is identified, NSAs should request the missing powers.
EIOPA’s actions to better understand this risk and support the supervisory responses include publication of opinions, reports and recommendations; and inclusion of low interest rate scenarios in stress tests.