Aggregate systemic risk scores of the global insurance sector declined slightly compared to last year’s analysis, remaining well below that of banks.
- In addition to an aggregate overview of insurers’ solvency, profitability and liquidity, the report shares in-depth analyses conducted on two key themes: (1) interest rate, liquidity and credit risks in a challenging macroeconomic environment; and (2) structural shifts in the life insurance sector, including greater allocation of capital to alternative assets and increased reliance on cross-border asset-intensive reinsurance.
- Insurers continue to have material exposures to climate change, through their significant investments in “climate-relevant sectors”,[1] and through the expected increase in claims related to natural catastrophe (NatCat) events, which may impact profitability and capital adequacy.
- Looking ahead, insurers’ solvency and profitability could be negatively impacted by lapses, unrealised losses and reduced insurance demand due to strains on households’ purchasing power in some markets. Geopolitical tensions continue to negatively influence the outlook.
Basel, Switzerland – The International Association of Insurance Supervisors (IAIS) today published its 2023 Global Insurance Market Report (GIMAR), sharing the outcomes of this year’s Global Monitoring Exercise (GME), the IAIS’ risk assessment framework to monitor key risks and trends and detect the potential build-up of systemic risk in the global insurance sector. The GME builds on data collected by year-end 2022 from approximately 60 of the largest international insurance groups and aggregate sector-wide data from supervisors across the globe, covering over 90% of global written premiums.
“GME data indicates that global insurance sector capital adequacy remains sound but has slightly declined at year-end 2022, primarily due to financial market developments such as lower asset valuations,” said Shigeru Ariizumi, IAIS Executive Committee Chair. “Nevertheless, the aggregate systemic risk footprint of the insurance sector decreased at year-end 2022 compared to the year before.”
Key drivers for the decline in system risk scores of the insurance sector are lower exposures to short-term funding, liability liquidity, intra-financial assets and minimum guarantees on variable products. A cross-sectoral comparison of insurance systemic risk scores with the banking sector shows that systemic risk stemming from insurers remains significantly below that of banks.
The assessment of climate-related risks in the insurance sector shows that insurers globally maintained significant exposure to climate-related assets, with insurers continuing to allocate substantial portions of their investment portfolios to climate-relevant sectors, exposing themselves to transition risk. One of the main physical risks of climate change for insurers is the expected increase in claims related to NatCat events. An increase in extreme NatCat events may impact insurers’ profitability, challenge their capital management and may disrupt reinsurance markets.
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