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According to the report, while the global economic outlook continues to improve, the prolonged low yield environment and low market volatility coupled with high levels of economic and political uncertainty continues to represent major challenges for European insurers and pensions funds. In this context, the impact of a sudden yield spike scenario should be assessed.
Additionally, the insurance sector is responding to the ongoing macroeconomic environment and technological challenges by adapting investment strategies and business models. A recent EIOPA survey identified a number of trends that could be associated with a search-for-yield behaviour. At the same time, the increase in unit-linked business over the last year shifts more risks to policyholders and calls for further scrutiny from supervisors.
Despite these challenges, the insurance sector remains well capitalised with a Solvency Capital Requirement (SCR) ratio for the median company above 200%. However, SCR ratios as well as the use of long-term guarantees (LTG) and transitional measures are diverse across the European Economic Area. In many cases, in particular for life insurers, these measures represent a substantial cumulative effect on the SCR ratios, providing a financial stability cushion and potentially acting in a countercyclical manner.
In the European occupational pensions sector, total assets increased for the euro area as did the average rate of return. The investment allocation as well as the average cover ratios for defined benefit schemes remained broadly unchanged, whilst the overall active membership increased especially in defined contribution schemes.
The current macroeconomic environment also negatively affects the European pension sector, as confirmed by EIOPA’s 2017 Occupational Pensions Stress Test. The lack of granularity of the data available in Europe seriously limits the relevance and decisiveness of the regular risk assessment and financial stability analysis of the sector. For that reason, EIOPA published a consultation paper on information requests towards the national supervisory authorities regarding the provision of occupational pensions information.