Credit risk remains at high level for Europe’s insurers: Eiopa

Credit risk faced by Europe’s insurers remains “high” because the threat of credit events persists at an elevated level, according to the latest risk dashboard published this week by the European Insurance and Occupational Pensions Authority (Eiopa) and based on first-quarter 2020 Solvency II data. The risk dashboard based on Solvency II data summarises the main risks and vulnerabilities in the European Union insurance sector through a set of risk indicators during the first quarter of 2020. This data is based on financial stability and prudential reporting collected from 81 insurance groups and 2,488 solo insurance undertakings. Eiopa says the results of its analysis show that the risk exposure of the European Union insurance sector remains “generally high” compared to April, as a result of the Covid-19 outbreak. “The pandemic continued to cause disruptions in all financial sectors and economic activities. Insurers are particularly exposed to very high levels of macro risk, while market, credit, profitability and solvency risks are at high level,” states the supervisory body. “With regard to macro risk, gross domestic product growth as well as inflation forecasts have been revised significantly downwards for all geographical areas. The unemployment rate increased following a steep fall of business activities. Fiscal balances are expected to deteriorate. As a response to the crisis, the governments announced their interventions to sustain the halted economies,” continues Eiopa. “Credit risk remains at a high level, as the risk of credit events [remains] elevated going forward. Profitability and solvency risks remain at a high level. Following the Covid-19 impact, the expected deterioration is already reflected in assets over liabilities and in the 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 the effects of an already pre-existing low-yield environment. The net combined ratio improved for non-life insurance undertakings,” it adds. Eiopa says that based on its latest solvency analysis, insurance risks decreased to “medium” level. “On one hand, year-on-year premium growth for life undertakings significantly declined, indicating already a negative impact from the Covid-19 outbreak. On the other hand, year-on-year premium growth for non-life undertakings and loss ratios show a slight improvement. Catastrophe loss ratios continue increasing following the significant events occurred during 2019 and 2020,” it explains. Market perceptions remained stable at “medium” level, says EIOPA. “Stocks of life and non-life insurance undertakings continued to underperform relative to the market, which in contrast experienced an unexpected increase. Insurers’ credit default swap spreads returned to a lower level, with insurers’ external outlooks showing a net increase in negative revision as of June 2020,” concludes the European supervisory body.

Credit risk remains at high level for Europe’s insurers: Eiopa

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Related Articles