Macro and market risks top concern for insurers

Written by Adam Cadle

15/05/2023

Insurers' exposures to macro and market risks are currently the main concern for the insurance sector, while all other risk categories are at medium levels, EIOPA's latest Risk Dashboard based on Q4 2022 Solvency II data has revealed.

Risks related to the macroeconomic environment continue to be the most relevant for the insurance sector. While forecasts for global GDP growth have ticked up slightly and unemployment remains low, projected consumer prices are in the higher range of previous assessments. Fiscal balances have deteriorated. The credit-to-GDP gap slightly increased and central banks keep tightening monetary policy.

Market risks are high amid increased volatility in the bond and equity markets. Insurers’ relative exposure to bonds, equity and property nevertheless remains largely unchanged.

Liquidity and funding risks increased. Insurers’ cash and liquid asset holdings dropped in the last quarter of 2022 while lapse rates have gone up.

Profitability and solvency risks remain at a medium level. Life insurers reported an increase in their SCR ratio, while the same measure for non-life insurers experienced a slight decrease. Return on both assets and premiums rose.

Interlinkage and imbalance risks are also at a medium level. Insurers continued realising market-to-market losses on their interest rate hedging derivatives positions although to a lower extent than in the previous quarter. The sector’s exposure to banks and other financial institutions has increased.

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