On 31 July EIOPA released the “July Insurance Risk Dashboard“, which highlights several key risks and trends within the insurance sector. Specifically, it indicates that while the overall risks in the European insurance sector remain stable and at medium levels, there are specific areas of concern for market risks, particularly related to market volatility and real estate prices. All risk categories seem to have a constant outlook for the next 12 months, apart from ESG related risks, Digitalisation and cyber risks, which are showing a worsening risk outlook for the next year.
Macro risks
Macro risks are at a medium level, with projected GDP growth in major regions showing positive developments and expected inflation rates decreasing slightly.
Credit risks
Credit risks are also at medium level, with insurers’ investments maintaining high overall credit quality and a slight increase in credit default swap (CDS) spreads for financial unsecured and non-financial corporate bonds.
Market risks
Market risks remain elevated, with increased volatility in both bond and equity markets observed in the second quarter of 2024 compared to the previous quarter. Despite this volatility, insurers’ median exposures to bonds and equities remained stable at 51% and 6% of total assets in the first quarter of 2024, respectively. Real estate prices continued to decline across the euro area, driven primarily by commercial real estate, with an 8% drop in the fourth quarter of 2023. However, overall exposure to property risk is limited.
Liquidity and funding risks
Liquidity and funding risks are at medium level, with the insurance sector maintaining stable liquidity positions overall. Funding conditions in the catastrophe bond market have slightly deteriorated in the first quarter of 2024, with lower volumes issued at a higher spread compared to the previous quarter.
Solvency and profitability risks
Solvency and profitability risks are also unchanged at medium level. Solvency ratios slightly decreased in the first quarter of the year, while recent data indicates improvements in the non-life combined ratio and returns on investments for life insurance companies.
Interlinkages & imbalances
Interlinkages and imbalances risks remain stable at a medium level in Q1-2024. Insurers’ median exposures to banks (14% of total assets), other insurers (1.4%), and other financial activities (23%) are broadly stable compared to the previous quarter.
Insurance risks
Insurance risks remain stable at a medium level. Year-on-year premium growth for both life and non-life business increased across the entire distribution in Q1-2024. Additionally, the median loss ratio has decreased.
Market perceptions
Market perceptions of the insurance sector remain stable at a medium level. Although insurers’ CDS spreads increased in June, there was an improvement in the external rating outlook for some insurance groups.
ESG risks
ESG-related risks are stable at a medium level, with expectations of an increasing risk outlook over the next year. Insurers’ median exposure to green bonds relative to their total corporate bonds was 6.2% in the first quarter of 2024, showing a gradual upward trend. Meanwhile, their median exposure to climate-relevant assets remained steady at 3.6% of total assets in the same period. Physical risk indicators, such as exposure to flood and windstorm, remained unchanged in 2023 compared to the previous year, with a generally higher exposure to windstorm.
Digitalization & cyber risks
Digitalisation and cyber risks are currently at a medium level, but the risk outlook is projected to increase over the next 12 months. Supervisors noted a slight rise in the materiality of these risks in the second quarter of 2024, largely due to an increased perceived probability of their occurrence. However, the number of global cyber-attacks across all sectors has decreased since the second quarter of the previous year.
Insurance Europe