With the implementation of the Solvency II regime in January 2016 substantial improvements as regards the risks' quantification and the reporting standards were introduced. The enhanced data of all (re)insurance undertakings subject to the Solvency II regime is the basis of the newly developed and improved analytical risk dashboard.
Risk Dashboard October 2020 (Q2-2020 Solvency II Data)
Note: The structural break as of Q1 2020 related to the Brexit withdrawal agreement and represented with a dashed line indicates a break in the number of undertakings of the time series and rebalance of the country weights. Additionally, adjusted time series for EU27 before Q1 2020 are also disclosed to reflect potential variations driven by the structural break in the sample. No expert judgement has been applied in any risk category. Credit and profitability and solvency risks show a large decrease trend due to the application of expert judgement in the July 2020 Risk Dashboard.
Macro risks remain at very high level given the persistent global impact of the outbreak of COVID-19 on economic activities, intensified by the second wave already initiated in several EU countries. Economic outlooks at the end of September, show the strongest expected decline in the last quarter of 2020 and first recovery in the second quarter 2021. The effects of the new wave of the pandemic might skew further downward GDP growth.
Moreover, the indicator on the 10 year swap rates decreased reaching new lows. Credit risks decreased to medium level. The CDS spreads continue decreasing across all market segments in September, remaining above the levels before COVID-19 crisis. Market risks decreased to medium level. Financial markets have stabilized in the first half of 2020, while remaining concerns related to decoupling between financial market performance and economic outlook that could lead to potential market correction remain. The volatility in the equity and bond markets continue decreasing, reaching lower levels than before COVID-19 crisis for the bond markets. Profitability and solvency risks decreased to medium level. SCR ratio for groups slightly improved from the last quarter amid remaining at lower levels than the last quarter of 2019.
All half-year profitability indicators, which now include the first month of the COVID-19 crisis and their impact on financial returns, show the expected signs of deteriorations. Insurance risks remain at medium level, driven by general concerns over decrease in premium growth, and in some jurisdictions over reserve adequacy. More specifically, year-on-year premium growth for life reported a significant deterioration for the second consecutive quarter, indicating already a negative impact from the COVID-19 outbreak. While market perceptions exhibit a decreasing trend, they are still at medium level. The median price-to-earnings ratio of insurance groups in the sample slightly increased dispersing from the low levels reached in the first half of 2020.
This Risk Dashboard based on Solvency II data summarises the main risks and vulnerabilities in the European Union insurance sector through a set of risk indicators of the second quarter of 2020 complemented with market data and other available information. Solvency II data is based on financial stability and prudential reporting collected from 98 insurance groups and 2507 solo insurance undertakings.
- Reference date for company data is Q2-2020 for quarterly indicators and 2019-YE for annual indicators. The cut-off date for most market indicators is end of September 2020.
- Risk Levels are based on a 4-level scale from Low (green) to Very high (red). Risk trend reports the quarter on quarter variation of the risk based on a 5-level scale from Substantial Decrease to Large Increase.