European insurers remain exposed to high risks

By Ranamita Chakraborty

The recently updated Risk Dashboard from the European Insurance and Occupational Pensions Authority (EIOPA) found that the risk exposures of the EU insurance sector remain generally high compared to April as a result of the COVID-19 outbreak.

This dashboard is based on Solvency II data and summarises the main risks and vulnerabilities in the EU 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 2,488 single insurance undertakings.

According to EIOPA, insurers are particularly exposed to very high levels of macro risk while market, credit, profitability and solvency risks are at a high level during the COVID-19 pandemic.

With regard to macro risk, GDP growth, as well as inflation forecasts, have been revised significantly downwards for all geographical areas. The unemployment rate increased following a steep fall in business activities and fiscal balances are expected to deteriorate.

Meanwhile, credit risk remains at a high level as the risk of credit events persist elevated going forward. Profitability and solvency risks also remain at a high level.

Following COVID-19, 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. However, the net combined ratio improved for non-life insurance undertakings.

Concurrently, insurance risks decreased to a medium level. While year-on-year premium growth for life undertakings significantly declined, year-on-year premium growth for non-life undertakings and loss ratio showed a slight improvement.

Asia Insurance Review

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