The report shows that the global (re)insurance sector has proven to remain well functioning and stable as evidenced by the high capital levels held by (re)insurers, the overall stable profitability shown by the sector and an on-going inflow of additional capital.
This 2015 edition of the Global Insurance Market Report (GIMAR) discusses the global (re)insurance sector from a supervisory perspective, focusing on the recent performance of the sector as well as key risks faced by it. During the current year, the global (re)insurance sector has proven to remain functioning and stable in the midst of an often challenging economic and financial environment. Evidence supporting this claim includes the high capital levels held by (re)insurers, the overall stable profitability shown by the sector and an on-going inflow of additional capital.
Partly reflecting increasing competition, the insurance premiums charged by non-life insurers and reinsurers in the commercial lines, property and catastrophe markets have come under pressure. Competition is especially strong in the reinsurance market, in part due to an increasing supply of capital from institutional investors, such as pension funds or hedge funds, to support alternative reinsurance capacity.
Investment yields for (re)insurers have declined slightly, but held up reasonably well despite low interest rates. Insurers’ investment income is, however, going to be impacted by a continuation of the low interest rate environment, as the proceeds from maturing assets are reinvested in lower-yielding securities. Investment yields will thus remain under pressure. The lagged impact of low interest rates will keep portfolio yields on a weakening trend for the next couple of years. There is also a risk that stock market performance will be less favourable once interest rates recover, meaning that an important pillar of investment returns may fade.
The insurance industry has experienced a surge of mergers and acquisitions (M&As). According to estimates by market participants, more than 10 percent of the global reinsurance industry is currently involved in major mergers activity. One section of the GIMAR thus aims to address the issue of the raising trend in M&A activity in insurance from the perspective of the relevant insurance supervisory authorities in particular, and International Association of Insurance Supervisors (IAIS) Members in general.
The arguments highlighted above are developed and discussed in the three chapters that make up the 2015 GIMAR. Chapter 1 analyses the overall macroeconomic and financial environment while Chapter 2 focuses specifically on global insurance market developments. Chapter 3, which forms the main part of the report, contains a variety of special topics that focus on regulatory, financial and economic developments and risks. One such section looks at the liquidity of corporate bond markets and its relevance for life insurers. Another discusses insurers’ reaching for yield and its implications for supervisors. More special topics cover capacity developments in reinsurance, changes in the insurance-linked securities market, the impact of Solvency II on non-European Economic Area jurisdictions, the use of derivatives by US insurers and the outsourcing of investment managers.
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