17 June 2014

EIOPA: Risk Dashboard June 2014 – Q1 2014 data

Market risk is still a concern. Looking ahead, the situation is unlikely to change in the near future as deflationary tendencies are still observed in Europe, which might lead to policy interest rates remaining low also in the longer term.

The ongoing moderate macroeconomic recovery continued. At the same time, although labour markets have stabilised and shown the first signs of improvement, unemployment remains high in the euro area. Government debt levels also remain elevated. The risks surrounding the economic outlook for the euro area continue to be on the downside. Geopolitical risks, as well as developments in global financial markets and emerging market economies, may have the potential to affect economic conditions negatively. Macroeconomic risks could be affected in case of weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries and in case of weaker export growth.

Liquidity and funding risks remain. Lapse rates in some countries increased. A moderate move towards riskier investment profiles can be seen. However, reshaping the profiles will take many years. At the same time, more illiquid assets are making their way into investment portfolios, including commercial mortgage loans, private placement bonds, asset-backed securities, infrastructure assets, and other alternative investments.

Credit risk has not reduced since the last review. The current monetary policy and excess of liquidity drive the current market indicators suggesting the low level of risk. However, this development does not correspond with the current high level of public and private indebtedness.

Profitability challenges remain. Return on equity (ROE) and return on assets (ROA) stayed around 10% and 0.4% respectively. The combined ratio (CR) also improved in the last quarter. However, profitability results are affected by the low interest rate environment.

Solvency II implementation will be in place in 2016. Solvency I levels continue to be robust. Growing reserve levels in some countries might also enable insurers to maintain positive results.

Interlinkages/Imbalances still create uncertainties. Contagion risks from banks and sovereigns and high imbalances remain in both public and private finances. This contributes towards an uncertain outlook going forward. On the other hand, rating outlooks covering countries of the large insurance groups are mostly stable or even positive.

Insurance risks are not a major concern. Although the overall losses and the insured losses caused by global natural disasters declined in 2013, the results varied considerably across regions. European losses accounted for nearly 30 per cent of the worldwide insured losses, while losses outside Europe were much lower than before. Competition between reinsurers increases and will eventually also have an effect on profitability and solvency.

Full dashboard

© EIOPA