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20 September 2013

EIOPA: Risk Dashboard - September 2013

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Despite some signs of improvement in the global economic outlook, the conditions of the European insurance companies remained fragile.

Data for the EIOPA risk dashboard was submitted by 30 large European insurance groups. The release of the EIOPA's risk dashboard is based on 2013-Q2 indicators. 

Use of Expert Judgement:

  • Market risk. Slight upward adjustment as market volatility remains a key concern regardless of the generally improved interest rate environment.
  • Credit risk. Slight upward adjustment remaining due to the accommodating macro environment which represses potentially higher default rates. As an additional factor, the potential distortion of bond prices needs to be considered: This is a result of excess liquidity while at the same time investors have limited alternatives to substantially reduce their credit risk exposure.
  • Liquidity/funding risk. Slight upward adjustment due to continued pressure on lapse rates and new business.

Risk Development – Q2 2013:

  • Macro risks are still a major concern in the EU and remain high on the agenda. Over the past three months ending in Q2-2013, macro risks moved slightly downwards. However, following a prolonged period of subdued growth, low disposable income, high unemployment rates and high debt to GDP, the risks remain at an elevated level. The political risk with regards to sovereigns also continues to influence the macro environment.
  • Market risks remain a key concern, heavily influenced by an increase in 10-year-swap rates. Equity and property investment shares are relatively stable.
  • Credit risk decreased since the last review but they still burden the sector with significant risk. The sovereign and corporate spreads somewhat declined in 2013-Q2. However, this could be the result of accommodating liquidity policies.
  • Profitability/Solvency challenges remain. Reported ROE and ROA are not yet constrained by the low interest rate environment as results still look relatively robust. However, ROI is already under pressure exposing insurers to declining profitability; the Combined Ratios on the other hand generate positive results bolstering profitability. Solvency I ratios, both for life and non-life companies, maintained a noteworthy comfortable level.
  • Interlinkages/Imbalances still create uncertainties. Contagion risks from banks and interlinkages with reinsurers should not be neglected. The perception of sovereign risk has improved, but remains high when compared with historical levels.
  • Insurance risks remain low. Natural catastrophes determine whether insurance risk is sustainable, but reinsurers are extremely well capitalised.
  • Liquidity/Funding are not affecting the insurance industry, but are monitored on an ongoing basis. Lapse rates are improving.

Full dashboard


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