CEIOPS’ half-year report on Financial Stability
24 June 2009
CEIOPS findings confirm that insurance companies, in their role as important investors, have increasingly been affected by the financial turmoil, followed by the financial crisis and the economic recession.
CEIOPS publish its half year Report on the financial condition and financial stability of the insurance and occupational pension fund sector in the EU/EEA.The insurance industry as a whole faces several risks and challenges going forward, of which the most prevalent are financial risks, in particular the risk of low or even again decreasing interest rates as well as risks related to depressed equity markets. A prolonged period of economic recession will be particularly challenging for the underwriting performance.
Regarding the IORPs, sharp drops in the equity markets and increasing credit spreads have put their investment portfolios under severe strain. However, the impact has not been as severe as seen in other financial sectors as the long term nature of the liabilities affords some protection in this respect and IORPs have not experienced the liquidity problems seen elsewhere. Policy responses from supervisors in light of the downturn have focused on the flexibilities within the current framework and the differing security mechanisms available.
The defined benefit (DB) occupational pension fund sector is coming under increased pressure, also because of low interest rates and prevailing longevity risk. The crisis has also been challenging for defined contribution (DC) plans, making evident that a careful plan design such as suitable default options and life-cycle mechanisms, are important elements in mitigating the effect of market downturns on plan members. In many countries, financial education and awareness is increasingly felt crucial, in order to empower people to make sensible and informed choices regarding their pension provisions
© CEIOPS
