Key observations:
- Risks for the insurance sector remain overall stable and some slight improvements are observed in the solvency ratios of groups and life solo undertakings.
- Profitability of the sector has shown some positive signs both for life and non-life.
- Despite these positive signs, the continuing low-yield environment and the observation that market fundamentals might not properly reflect the underlying credit risk, still represent important concerns for the EU insurance industry.
- Underwriting risks remain of limited concern; however the impact of the recent nat cat events has not yet been reflected in this risk dashboard release and might affect (re)insurers exposed to the non-life business. At this stage no final conclusion can be made.
- Market perception improved driven by the outperformances of the insurance stocks and the reduction of the CDS spreads. Ratings and rating outlooks remain stable.
The macroeconomic environment characterised by enduring low-yields remains fragile. Inflation rate forecast is decreasing inverting the positive trend observed till March 2017, whereas unemployment rates continued to decrease. Despite slightly increasing policy rates in some jurisdictions, the balance sheets of central banks are still expanding (even if the increasing trend is reducing) with potential effects on the pricing of risk premia.
Credit risk is still not properly reflected in market prices where the observed spreads are close to the historical low. The investment portfolio of the undertakings, largely composed of investment grade assets, remains stable in terms of credit quality.
Market risks remain at a medium level. The slight increase of the volatility in the bond markets is counterbalanced by the reduction of the volatility in equity markets. Insurance specific indicators confirm the stable risk exposure.
Risks relating to liquidity and funding remain constant in Q2 2017. However, the increase of the average coupon/maturity indicator, despite affecting a minority of the market, shows an increased challenge for insurers to raise debt funding. Q2 2017 reports a material increase in the cat bond issuance to back potential effects deriving from the hurricane season. Nevertheless the overall assessment of the risk category shows that liquidity is not a major issue for the insurance industry.
Indicators of profitability and solvency signal slight signs of improvement. SCR ratios slightly increased for groups and life solo undertakings whereas non-life solo undertakings reported stable values. Profitability of the sector has shown some positive signs both for life and non-life business.
Insurance risks remain unchanged. Concerns rise from the potential impact on the industry of the recent nat cat events observed in the US and in some European countries. Those events are not yet reflected in the specific metrics and any conclusive change on the impact is premature.
Click here to access EIOPA’s detailed dashboard
bleu-azur-consulting.eu 