EIOPA Risk Dashboard January 2018

Risks originating from the macroeconomic environment remained stable and high. Improvements have been observed across most indicators, but were not sufficient to change the overall risk picture. The improving prospects for economic growth still contrast with the persistence of structural imbalances, such as fiscal deficit. The accommodative stance of monetary policy has been reduced only very gradually, with low interest rates continuing to put a strain on the insurance sector.

Credit risks remained constant at a medium level whereas observed spreads continued to decline. The average rating of investments has seen some marginal improvements. Concerns on the pricing of the risk premia remain.

Market risks remained stable at a medium level despite a reduction of the volatility on prices was observed. Only price to book value of European stocks moved in the direction of risk increase.

Liquidity and funding risks were constant at a medium level in 2017 Q3 and remained a minor issue for insurers. Catastrophe bond issuance significantly decreased when compared to the record high registered during the previous quarter. The low volume of issued bonds made the indicator less relevant.

Profitability and solvency risks remained stable at a medium level. A deterioration of the net combined ratio was observed in the tail (90 percentile) of the distribution mainly populated by reinsurers in this quarter. SCR ratios have improved across all types of insurers mainly due to an increase of the Eligible Own Funds. This has been especially marked for life solo companies.

Interlinkages & imbalances: Risks in this category remained constant at a medium level. Investment exposures to banks and other insurers increased slightly from the previous quarter.

Insurance risks increased when compared to 2017 Q2 and are now at a medium level. This was essentially driven by the significant increase in the catastrophe loss ratio resulting from the impact of the catastrophic events observed in Q3 mainly on reinsurers’ technical results. This is also reflected in the loss ratio. Other indicators in this risk category still point to a stable risk exposure.

Market perceptions remained constant, with the improvement in external rating outlooks outweighing the observed increase in price to earnings ratios. Insurance stocks slightly outperformed the market, especially for life insurance, and CDS spreads reduced.

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Click here to access EIOPA’s Risk Dashboard January 2018

How to successfully mitigate your organization’s third-party risk

What Is Third-Party Risk Management & Third-Party Due Diligence?

Third-party risk management is the process of assessing and controlling reputational, financial and legal risks to your organization posed by parties outside your organization. Third-party due diligence is the investigative process by which a third party is reviewed to determine any potential concerns involving legal, financial or reputational risks. Due diligence is disciplined activity that includes reviewing, monitoring and managing communication over the entire vendor engagement life cycle.

The Risks Are Real

As we see in the news too often, lapses in leadership around managing third parties have damaged organizations by exposing them to massive fines and penalties. According to the 2016 Benchmark Report, one-third of respondent organizations have faced legal or regulatory issues that involved third parties, with 50 percent of these involving average costs per incident of $10,000 or more. Even if the financial penalty can be managed, the reputational impact can have far-reaching consequences for many years. Third-party risk management is a top concern of compliance leaders, but many organizations are still coming to terms with how best to manage their third parties to limit risk and develop programs based on organizational risk assessments. The 2016 NAVEX Global benchmark report found that many organizations think they could be doing a better job of third-party risk management. Only 58 percent reported that they do a good job of complying with laws and regulations, and less than 25 percent rate their overall program as Good. Organizations may be diligent with their ethics and compliance programs, but for many the risk their third parties represent is a Wild West over which they feel like they have little control.

Benefits of a Strong Third-Party Risk Management Program

Managing third-party risk can make a big difference inhow well your organization can identify, manage and limit the liability a third party can represent. Your third party’s risk is your risk. You should have confidence that your program is minimizing that risk for you and your organization.

TPRClick here to access NAVEX detailed guide