Insurers’ exposures to macro, market and cyber risks main concern for industry

Written by Adam Cadle

01/08/2022

Insurers’ exposures to macro, market and digitalisation risks are currently the main concern for the insurance sector, EIOPA’s latest Risk Dashboard based on Solvency II data from Q1 2022 has shown.

In terms of macro-related risks, forecasted GDP growth at a global level further decreased until Q2 2023, while inflation forecasts for the main geographical areas remain high. Central banks are adjusting their instruments: the global average policy rate increased while asset purchases continue at a slower pace and will further slowdown. Furthermore, 10-year swap rates increased across currencies.

Concerning market risks, EIOPA said volatility in the bond market increased and remained at high levels in equity markets. Property prices showed a slight further increase. The median insurers’ exposure to bonds has decreased slightly, whereas exposure to equity remained relatively unchanged and exposure to property slightly increased in Q1 2022. According to EIOPA, credit risks remain relatively moderate, but CDS spreads further increased for financial unsecured and non-financial corporate bonds and the median exposure to below investment grade assets (with a credit quality step higher than 3) slightly increased.

The other risk categories, such as insurance as well as profitability and solvency risks have stayed at medium levels. EIOPA said given the increasing trend of interest rates since the beginning of the year, the solvency position of life undertaking rose, while the solvency position of groups dropped. The median return on investment for life undertakings decreased. The year-on-year premium growth for non-life reported a substantial increase, while for life a slight decrease was observed.

Climate risks also remain at a medium level, according to the dashboard. Insurers slightly increased the share of green bonds in their asset portfolio, while their ratio of investments in green bonds of the entire green bond universe slightly decreased. The y-o-y growth of green bonds in insurers’ portfolios has slightly increased, while the growth of green bonds outstanding has decreased.

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