Today, the
European Insurance and Occupational Pensions Authority (EIOPA) published its
updated Risk Dashboard based on the fourth quarter 2019 Solvency II data.
Despite the fact that some
indicators used in this Risk Dashboard do not capture the latest market
development in the context of Covid-19 outbreak, the expected deterioration of
the relevant indicators reflecting all available information in a forward
looking perspective has been considered in the assigned risk levels. This
addresses the current situation of high uncertainty in the insurance market.
The results show that the
risk exposures of the European Union insurance sector increased as the outbreak
of Covid-19 strongly affected the lives of all European citizens with
disruptions in all financial sectors and economic activities.
Macro and market risks
indicators deteriorated in March 2020, moving from high to very high level. The
macroeconomic environment has been affected strongly by the global lockdown.
GDP estimate points to a strong downturn for the first quarter 2020 and latest
forecasts predict a recession worldwide for 2020. Inflation forecasts have been
revised downwards for the next four quarters. Monetary policy support has been
activated by all major central banks. Financial markets have been characterized
by sell-off across asset classes, increased volatilities for bond and equity
markets, increasing risk premia and flight to quality investment behaviour in
March 2020. Credit risk has increased across all asset classes, in particular
CDS of government bonds, financial and non-financial corporate bonds have
increased sharply. Liquidity and funding risks have been raised to high level
due to potential additional strains on the disposable liquidity of insurers in
the medium to long-term horizon.
For Q4-2019 liquidity
indicators were broadly stable, however some are expected to worsen, triggered
by possible decrease in premiums and new business, potential increase in claims
and illiquid level of certain assets. Profitability and solvency risks have
increased to high level.
Although for Q4-2019 insurers
solvency positions remained relatively stable, looking ahead profitability and
solvency risks are expected to deteriorate, given the double-hit scenario
negatively affecting insurers on both asset and liability side. Insurance risks
also raised to high level. While broadly stable in Q4-2019, negative effects
via income reduction and increase in claims are expected going forward.
Market perceptions remain at
medium level albeit deteriorating. The EU insurance sector underperformed the
market, both life and non-life businesses lines, and the median
price-to-earnings ratio of insurance groups in the sample decreased since the
last assessment. Insurers' external ratings and rating outlooks do not show sign
of deterioration as of end March 2020, however credit quality is expected to
deteriorate.
Background
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 fourth quarter
of 2019 complemented with market data and other available information. This
data is based on financial stability and prudential reporting collected from 96
insurance groups and 2837 solo insurance undertakings.
Credit:
The post European insurers face increased risk exposures due to
Covid-19, but market perceptions and imbalances remained at medium level first appeared in EIOPA on May 18, 2020
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