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The Insurance Risk Dashboard, based on Solvency II data, summarises the main risks and vulnerabilities in the European Union’s insurance sector through a set of risk indicators. The data is based on financial stability and prudential reporting collected from insurance groups and solo insurance undertakings.


May 2024 Risk Dashboard

The reference date for company data is Q4-2023 for quarterly indicators and 2022-YE for annual indicators. The cut-off date for most market indicators is end of March 2024. The Level (color) corresponds to the level of risk as of the reference date, the Trend is displayed for the 3 months preceding the reference date and the Outlook is displayed for the 12 months after the reference date. The latter is based on the responses received from 24 national competent authorities (NCAs) and ranked accordingly to the expected change in the materiality of each risk (substantial decrease, decrease, unchanged, increase and substantial increase).


Disclaimer: Please note that the insurance risk dashboard is published for the first time in an improved HTML format and all time series have been updated, including resubmissions and refinements to data quality.




Key Observations





Macro Risks

Despite some positive trends in macroeconomic indicators, risks persist. While average GDP growth forecasts have shown improvement, moving from 0.6% to 0.9% across key global geographical areas, it remains relatively low. This low growth environment could have adverse effects on insurers, including lower growth in premiums and higher claims. Average forecasted inflation remained almost unchanged at around 2.3%, but uncertainties linger. In the first quarter of 2024, 10-year swap rates slightly increased from 2.7% to 2.9% on average, while key monetary policy rates and central bank balance sheets across major economies remained unchanged. Unemployment rates held steady at 5.6% in the second half of 2023 and fiscal balances improved slightly to -3.4% in Q3-2023 (from -3.8%). In Q3-2023, the credit-to-GDP gap was still well into negative territory, standing at -17.7%.



Note: Average of forecasts four quarters ahead, weighted average for Euro area, United Kingdom, Switzerland, United States, BRICS.
Source: Bloomberg Finance L.P.

Note: Weighted average for EU, Switzerland, United States, China.
Source: Refinitiv

Note: Weighted average for EU, UK and United States.
Source: Refinitiv

Note: Average of forecasts four quarters ahead, weighted average for Euro area, United Kingdom, Switzerland, United States, BRICS.
Source: Bloomberg Finance L.P.

Note: Weighted average for EUR, GBP, CHF, USD.
Source: Refinitiv

Note: Weighted average for Euro area, United Kingdom, Switzerland, United States, China.
Source: Refinitiv

Note: Weighted average for Euro area, United Kingdom, Switzerland, United States.
Source: Bloomberg Finance L.P.

Credit Risks

Credit risks remain stable at medium level. Insurers median exposure to sovereign and corporate bonds remained stable from Q3-2023 to Q4-2023, with the relevant risk metrics pointing to low or medium risk. In terms of exposure in Q4-2023, the median investments in government bonds is 25.6% of total assets, in financial unsecured bonds is 9.1%, in financial secured bonds is 1.6% and 10.1% in non-financial bonds. In Q1-2024, the CDS spreads remain low and around the same levels of the previous assessment for government (11bps) and financial secured bonds (47bpts) and they have slightly decreased for financial unsecured (from 68bps to 62bps) and non-financial bonds (from 120bps to 102bps). Insurers’ exposure to mortgages and loans remains low (median at 0.3% of total assets for Q4-2023), with the household debt-to-income ratio broadly stable at around 90% for the euro area based on the latest available data (Q3-2023). Overall, the credit quality of investments is high, with the median CQS at around 2, corresponding to AA S&P rating. The median share of assets below investment grade is low and around 1.1%.



Note: Left scale shows the distribution of exposures (inter-quartile range and median), right scale the risk measure.
Source: Refinitiv, QFG

Note: Left scale shows the distribution of exposures (inter-quartile range and median), right scale the risk measure.
Source: Refinitiv, QFG

Note: Left scale shows the distribution of exposures (inter-quartile range and median), right scale the risk measure.
Source: Bloomberg Finance L.P., QFG

Note: Left scale shows the distribution of exposures (inter-quartile range and median), right scale the risk measure.
Source: Bloomberg Finance L.P., QFG

Note: Left scale shows the distribution of exposures (inter-quartile range and median), right scale the risk measure.
Source: QFG, ECB

Note: Distribution of indicator (interquartile range, median).
Source: QFG

Note: Distribution of indicator (interquartile range, median). Includes both internal and external credit ratings.
Source: QFG

Note: Correlation between the debt-service ratio of non-financial corporates and the spread of non-financial corporate bonds based on a 12-quarter rolling window.
Source: BIS, Bloomberg Finance L.P.

Market Risks

Market risks are at high level. Volatility in the bond market slightly decreased in the first quarter of 2024, and insurers’ median exposure to bonds remains at 51.8% of total assets in Q4-2023. Volatility in the equity market remained stable, with insurers’ median exposure to that asset class around 5%. Exposures to property remain at 3.2% of total assets in Q4-2023 and the latest available data for both residential and commercial real estate prices (Q2-2023) points to a decrease of 8%, driven by commercial real estate. Latest information on Q3-2023 for commercial real estate prices indicates a further decrease. Annual indicators (based on 2022) do not yet capture the positive market performance of 2023.



Note: Left scale shows the distribution of exposures (inter-quartile range and median), right scale the risk measure.
Source: Bloomberg Finance L.P., QFG

Note: Left scale shows the distribution of exposures (inter-quartile range and median), right scale the risk measure.
Source: Bloomberg Finance L.P., QFG

Note: Left scale shows the distribution of exposures (inter-quartile range and median), right scale the risk measure. The growth of real estate prices is based on a weighted average of commercial and residential real estate prices.
Source: QFG, ECB

Note: Distribution of indicator (interquartile range, median). The numerator of the investment return ratio excludes Solvency II reported unrealised gains and losses, contrary to the time series published until February 2024. The new method has been applied to the full time series.
Source: ARS

Note: Herfindahl Hirschman index computed on six balance sheet asset classes (government bonds, corporate bonds, equities, properties, cash and cash equivalents and loans and mortgages). Distribution of indicator (interquartile range, median).
Source: QFG

Note: Distribution of indicator (interquartile range, median). EIOPA estimates the modified duration of the liabilities based on the reported Macaulay duration. This calculation might be revised with the introduction of the new taxonomy, depending on data quality and availability.
Source: Assets: QFG, Liabilities: AFG

Liquidity & Funding

Liquidity and funding risks remain stable at medium level. In Q4-2023, insurers’ median cash holdings have slightly increased to 0.74% and the median liquid asset ratio has remained close to 50%. Insurers’ lapse rates have increased in 2023, with the median lapse rate at around 5%. On the funding side, cat bond issuance increased compared to the previous quarter, reaching around 5 billion and a low multiplier (spread/expected annual loss) in Q4-2023, and insurers’ bond issuance increased in Q1-2024 with the average coupon to maturity increasing from 0.5% to 0.8%.



Note: Distribution of indicator (interquartile range, median).
Source: QRS

Note: Distribution of indicator (interquartile range, median). Note: Distribution of indicator (interquartile range, median). EIOPA revised the classification of liquid assets and the weights applied to different asset classes compared to the version published until February 2024. The calculation now includes exposures to financials and introduces a split for different categories of Collective Investment Undertakings. The new calculation has been applied to the full time series.
Source: QRS

Note: Distribution of indicator (interquartile range, median).
Source: QFG

Note: Distribution of indicator (interquartile range, median). EIOPA revised the classification of liquid assets and the weights applied to different asset classes compared to the version published until February 2024. The new calculation has been applied to the full timeseries.
Source: ARS

Note: Distribution of indicator (interquartile range, median).
Source: ARS

Note: Volume in EUR mn.
Source: Bloomberg Finance L.P.

Note: Volumes in USD mn, spread in per cent.
Source: http://artemis.bm

Profitability & solvency

Profitability improved in 2023 compared to 2022, with some sign of vulnerabilities in non-life business at the end of 2023. The median non-life combined ratio slightly deteriorated in Q4-2023, moving to 98.9%, indicating insurance companies generated just sufficient profits from their business. Other profitability indicators for Q4-2023 instead confirm a positive performance: the median return on assets remains at 0.8%, the median return on equity (proxied by the return on excess of assets over liabilities) remains at 15.% and the median return to premiums slightly decreased to 5%, but remained higher than the previous year. The insurance groups’ median solvency ratios are broadly stable at around 230%. For non-life insurers, the median SCR ratio also remains stable around 217%, but there is a decline in the upper tail of the distribution for Q4-2023 compared to the previous quarter. For life insurers, the median SCR ratio slightly decreased from 243% to 238% and the distribution widened. The indicators on Tier 1 own funds to total own funds and expected profit in future premiums are broadly stable.




Note: Distribution of indicator (interquartile range, median).
Source: QRS

Note: Distribution of indicator (interquartile range, median). The indicator excludes unrealised gains and losses, contrary to the time series published until February 2024. The new calculation has been applied to the full time series. For information purposes, the median is also shown with the inclusion of unrealised gains and losses.
Source: ARS

Note: Distribution of indicator (interquartile range, median).
Source: QFG

Note: Distribution of indicator (interquartile range, median). Q2 figures annualised.
Source: QFG and ARG

Note: Distribution of indicator (interquartile range, median). Q2 figures annualized.
Source: QFG and ARG

Note: Distribution of indicator (interquartile range, median).
Source: QFG

Note: Distribution of indicator (interquartile range, median).
Source: “Total” QFG

Note: Distribution of indicator (interquartile range, median).
Source: QRS

Note: Distribution of indicator (interquartile range, median).
Source: QRS

Note: Distribution of indicator (interquartile range, median).
Source: ARS

Note: Distribution of indicator (interquartile range, median).
Source: QFG

Note: Distribution of indicator (interquartile range, median).
Source: QRS

Interlinkages & imbalances

Interlinkages and imbalances risks remain stable at medium level in Q4-2023. The median exposure of insurers to banks remains stable at around 14%, while the exposure to other financial institutions slightly increased from 22% to 24% of total assets. Insurers’ median exposure to insurers is at 1.5%, to domestic sovereign debt at 8.3%, and to derivatives at 0.3%.



Note: Distribution of indicator (interquartile range, median). Banks comprise all activities identified with NACE code K.64.1.9.
Source: QFG

Note: Distribution of indicator (interquartile range, median). Insurances comprise all activities identified with NACE code K65, excluding K65.3.
Source: QFG

Note: Distribution of indicator (interquartile range, median). Other financial institutions comprise all activities identified with NACE codes K66, K65.3 and K64 excluding K64.1.9.
Source: QFG

Note: Distribution of indicator (interquartile range, median).
Source: QRS

Note: Distribution of indicator (interquartile range, median).
Source: QFG

Note: Distribution of indicator (interquartile range, median). Derivatives holdings are calculated as the total value of derivatives from the balance sheet (i.e. both asset and liability values in absolute terms).
Source: QFG

Note: Distribution of indicator (interquartile range, median).
Source: QFG

Insurance Risks

Insurance risks remain stable at medium level. The median year-on-year premium growth for life business remains stable and positive (1.2%), with an increase for the lower 25th percentile of the distribution in Q4-2023. The y-o-y premium growth in non-life business is also positive and stable with the median at around 5% in Q4-2023. The median loss ratio slightly increased, indicating potential less profits from non-life business.



Note: Year-on-year change in gross written premiums. Distribution of indicator (interquartile range, median).
Source: QFG

Note: Year-on-year change in gross written premiums. Distribution of indicator (interquartile range, median).
Source: QFG

Note: Distribution of indicator (interquartile range, median).
Source: QRS

Market perceptions

Market perceptions remain stable at medium level. Non-life (life) insurance stocks underperformed (overperformed) the market, while the median price-to-earnings ratio of insurance groups in the sample was stable at 11% in Q1-2024. CDS spreads of insurers decreased across the whole distribution. Insurers’ external ratings remained broadly stable since the last assessment.



Note: Out-(under-)performance over 3-month periods vs Stoxx 600.
Source: Refinitiv

Note: Distribution of indicator (interquartile range, median).
Source: Refinitiv

Note: Distribution of indicator (interquartile range, median).
Source: Refinitiv

Source: Standard & Poor’s via Refinitiv

Source: Standard & Poor’s via Refinitiv.

Digitalisation & cyber risks

Digitalisation and cyber risks remain at medium level. The materiality of these risks for insurance as assessed by supervisors slightly increased in the first quarter of 2024. The number of cyber-attacks impacting all sectors of activity, as measured by publicly available data, decreased since the same quarter of last year, while cyber negative sentiment indicates an increasing concern in the first quarter of 2024.



Note: Scores compiled based on the assessment of probability and impact (lhs: scale from 1 to 4) of digitalisation & cyber risks from National Competent Authorities. The country average for each answer is then normalised (rhs: scale 0-100).
Source: EIOPA’s Insurance Bottom-up Survey.

Note: Number of publicly disclosed global cyber attacks over time and changes.
Source: University of Maryland CISSM Cyber Events Database, EIOPA calculations.

Note: Text analysis based indicator, calculated from earning calls transcripts
Source: Refinitiv, EIOPA calculations.

APPENDIX





Arrows for the Trend show changes for the 3 months preceding the reference date, while arrows for the Outlook show expected developments for the next 12 months.

Description of risk categories

Macro risks

This category depicts developments in the macro-economic environment that could impact the insurance sector. This category is based on publicly available data on macro variables that may be used for broader macroprudential monitoring and analysis.

Credit risks

The category assesses the vulnerability of the insurance sector towards credit risks. To achieve this aim, credit-relevant asset class exposures of the insurers are combined with the relevant risk metrics applicable to these asset classes.

Market & asset return risks

The risk category depicts the main risks insurers are exposed to on financial markets and the level of asset returns and costs (e.g. administrative, investments and other). For most asset classes these risks are being assessed by analysing both the investment exposure of the insurance sector and an underlying risk metric. The exposures give a picture of the vulnerability of the sector to adverse developments; the risk metric, usually the volatility of the yields of the associated indices, gives a picture of the current level of riskiness.

Liquidity & funding risks

This category aims at assessing the vulnerability of the European insurance industry to liquidity shocks. The set of indicators encompasses the lapse rate of the life insurance sector with high lapse rate signaling a potential risk, holdings of cash & cash equivalents as a measure of the liquidity buffer available, and the issuance of catastrophe bonds, where a very low volume of issuance and/or high spreads signals a reduction in demand which could form a risk.

Profitability & solvency

The category scrutinizes the level of solvency and profitability of the European insurance industry. Both dimensions are analyzed for the overall industry (using group data) and include a breakdown for the life and non-life companies (using solo data). In detail, the solvency level is measured via solvency ratios and quality of own funds. Standard profitability measures for the whole industry are complemented by indicators such as the combined ratio and the return on investments specifically applied to the non-life and life industry respectively.

Interlinkages & imbalances

Under this section various kinds of interlinkages are assessed, both within the insurance sector, namely between primary insurers and reinsurers, between the insurance sector and the banking sector, as well as interlinkages created via derivative holdings. Exposure towards domestic sovereign debt is included as well.

Insurance (underwriting) risks

As indicators for insurance risks gross written premiums of both life and non-life business are an important input. Both significant expansion and contraction are taken as indicators of risks in the sector; the former due to concerns over sustainability and the latter as an indicator of widespread contraction of insurance markets.

Market perceptions

This category encompasses the financial markets’ perception of the healthiness and profitability of the European insurance sector. For this purpose, relative stock market performances of European insurance indices against the total market are assessed, as well as fundamental valuations of insurance stocks (price/earnings ratio), CDS spreads and external ratings/rating outlooks.

Digitalisation & cyber risks

This risk category aims to capture potential financial stability risks related to an increased digitalisation, which exposes the insurance sector to risks both from an operational resilience perspective (as insurers themselves can be targets of cyber-attacks) and from an underwriting perspective (related to the provision of cyber insurance products). The set of indicators encompasses the supervisors’ assessment of digitalization & cyber risks considering different aspects such as cyber security risks, cyber underwriting risks and Insurtech competition, the year-on–year change in the frequency of cyber incidents as reported in the Hackmageddon.com database and, finally, the negative sentiment of European insurers against cyber risk. This section will be further developed as new data becomes available.




 

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