The report reveals that the insurance industry faces several risks and challenges going forward, the most prevalent being financial risks. The pension funds were primarily hit by the crisis in their role as institutional investors.
The Report covers developments in the insurance, reinsurance and occupational pension fund markets in recent years, including observations regarding 2009 and 2010 and an outlook beyond.
CEIOPS findings are based on quantitative and qualitative reports from supervisors and reveal that in the first half of 2010, risks have shifted, though not significantly increased compared to 2009, due to the recent developments concerning sovereign risk in the Euro area. Though the insurance and occupational pension fund sector had a more favourable financial position by end-2009, the consequences of the crisis are still being felt in the two sectors.
Insurance
The insurance industry as a whole faces several risks and challenges going forward, of which the most prevalent are financial risks, in particular the risk of low or even decreasing interest rates, as well as risks related to depressed equity markets and volatility of credit spreads on bond instruments. A prolonged period of economic recession would be particularly challenging for the underwriting performance.
In 2009, solvency margins have slightly increased due to the recovery in financial markets. CEIOPS has found that most insurance undertakings’ solvency margins include sufficient shock absorption capacity helping them to get through the recession period.
Occupational pensions
The recovery of financial markets, especially after the third quarter of 2009, led to relatively high investment returns, appreciation of assets and higher funding ratios of Institutions for Occupational Retirement Provisions (IORPs). However, the crisis hit pension funds primarily in their role as institutional investors and had a significant impact on consumer confidence.
In response to the crisis, supervisory authorities are focusing on the flexibilities within the current framework allowed in the IORP Directive and the different security mechanisms available. No major changes in the supervisory approaches have been reported or are expected.
© CEIOPS
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