The 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.
The data is based on financial stability and prudential reporting collected from insurance groups and solo insurance undertakings.
Risk Dashboard July 2023 (Q1-2023 Solvency II Data)
Key observations:
Risk levels for the European insurance sector remain broadly constant, with all risk categories pointing to medium risks with the exception of macro risk. Macro-related risks remain among the most relevant for the insurance sector. Forecasted GDP growth at global level further increased to 0.74%. CPI forecasts slightly decreased to 3.22% for the next four quarters. Credit risks is at medium level. The CDS spreads increased for financial secured bonds in the second quarter of 2023, while CDS spreads for other fixed income market segments receded slightly. Market risks decreased from high to medium level as volatility in equity market decreased and duration mismatch narrowed compared to the previous assessment.
Liquidity and funding risks show an increase in cash holdings and a drop in the liquid assets ratio in the first quarter of 2023. Profitability and solvency risks show a drop in the investment return for life insurers in 2022 mainly due to the large increase of unrealized losses following the increase of interest rates. The distribution of the SCR ratio for insurance groups decreased. Similarly, life insurers reported a slight decline in the median SCR ratio. On the other hand, assets over liabilities increased due to the higher interest rates. Interlinkages and imbalances risks remain at medium level while insurance risks decreased in Q1-2023, with the median year-on-year premium growth for non-life insurance decreasing to end 2021 levels.
Market perceptions show positive returns for insurance stocks, albeit an underperformance of life insurance stocks when compared to the market for the second quarter of 2023.
ESG related risks display an increasing trend with the median exposure towards climate relevant assets slightly increased to 3.3% of total assets. Moreover, the catastrophe loss ratio also deteriorated. On the other hand, the share of insurers’ investments in green bonds over total green bonds outstanding is stable compared to the previous quarter.
Digitalization and cyber risks also display an increasing trendwiththe materiality of these risks for insurance as assessed by supervisors increasing in the first half of 2023. The frequency of cyber incidents impacting all sectors of activity, as measured by publicly available data, increased since the same quarter of last year. The indicator cyber negative sentiment indicates a decreasing concern in the second quarter of 2023.
Note:
- Reference date for company data is Q1-2023 for quarterly indicators and 2022-YE for annual indicators. The cut-off date for most market indicators is end June 2023.
- 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.