02 October 2012

EIOPA Risk Dashboard - September 2012

The European Insurance and Occupational Pensions Authority published its Risk Dashboard for September 2012, assessing the main systemic risks and vulnerabilities faced by the European insurance industry over the coming quarters.

On the basis of observed market conditions, data gathered from undertakings, and expert judgement, EIOPA assesses the main systemic risks and vulnerabilities faced by the European insurance industry over the coming quarters to be:

• Macro risks/political uncertainty: Political uncertainty regarding the European Financial Stability Pact combined with recessionary pressure in a number of economies in the EU have increased macro-economic risks since the previous risk dashboard. Although several important steps have been taken recently both at the European and national level, uncertainty with regard to the effective handling of the current debt crisis and future debt sustainability in the EU prevails and could eventually lead to a stressed situation for the European insurance industry.
• Credit and market risk: The last weeks have seen a slight improvement in credit risk as CDS spreads have been decreasing. However, still high sovereign yields and high spreads on financial and non-financial bond holdings make the capital position of insurers challenging. This is exacerbated by a low interest rate environment in a number of economies which further threaten solvency positions. 10-year swap rates in Western Europe have again reached new lows in the past months.
• Interconnectedness with the banking sector: There is a risk that the banking sector problems spill over to insurance companies. In some jurisdictions, life insurers are experiencing increased competition from banks due to the banks’ aim to strengthen the deposit base.
• Stabilisation in life insurance business: The declining trend in life gross written premiums has been reversed and lapse rates in the sample improved from their peak in Q4-2011.

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