EIOPA published its updated Risk Dashboard based on the first quarter of 2020 Solvency II data. The results show that the risk exposures of the European Union insurance sector remain generally high compared to April as a result of the COVID-19 outbreak
The
pandemics continued to cause disruptions in all financial sectors and
economic activities. Insurers are particularly exposed to very high
levels of macro risk, while market, credit, profitability and solvency
risks are at high level.
With regard to macro risk, Gross Domestic Product (GDP) growth as
well as inflation forecasts have been revised significantly downwards
for all geographical areas. The unemployment rate increased following a
steep fall of business activities. Fiscal balances are expected to
deteriorate. As a response to the crisis, the governments announced
their interventions to sustain the halted economies.
Credit risk remains at high level, as the risk of credit events
persist elevated going forward. Profitability and solvency risks remain
at high level. Following the COVID-19 impact, the expected
deterioration is already reflected in asset over liabilities and in
weakening of Solvency Capital Requirement (SCR) ratios for groups and
non-life undertakings. A further drop of SCR ratios for both life and
non-life undertakings is expected for the next quarter, with the
depreciation of assets in the context of COVID-19 as well as effects of
already pre-existing low yield environment. The net combined ratio
improved for non-life insurance undertakings.
Insurance risks decreased to medium level. On one hand, year-on-year
premium growth for life undertakings significantly declined indicating
already a negative impact from the COVID-19 outbreak. On the other hand,
year-on-year premium growth for non-life undertakings and loss ratio
show a slight improvement. Catastrophe loss ratio continues increasing
following the significant events occurred during 2019 and 2020.
Market perceptions remained stable at medium level. Stocks of life
and non-life insurance undertakings continued to underperform relative
to the market, which in contrast experienced an unexpected increase.
Insurers’ Credit Default Swaps (CDS) spreads returned to lower level,
with insurers’ external outlooks showing a net increase in negative
revision as of June 2020.
Background
This Risk Dashboard based on Solvency II data summarises the main
risks and vulnerabilities in the European Union insurance sector through
a set of risk indicators of the first quarter of 2020. This data is
based on financial stability and prudential reporting collected from 81
insurance groups and 2488 solo insurance undertakings.
Despite the fact that some indicators used in this Risk Dashboard do
not still completely capture the latest development in the context of
Covid-19 outbreak, the expected deterioration of the relevant indicators
reflecting all available information in a forward looking perspective
has been considered in the assigned risk levels where possible.
Expert judgment is applied in credit and profitability and solvency risks categories.
EIOPA
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