Insurance Risk Dashboard
EIOPA-BoS-24-429
October 2024
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.
October 2024 Insurance Risk Dashboard
The reference date for company data is Q2-2024 for quarterly indicators and 2023-YE for annual indicators. The cut-off date for most market indicators is the end of September 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 23 national competent authorities (NCAs) and ranked according to the expected change in the materiality of each risk (substantial decrease, decrease, unchanged, increase and substantial increase).
Key Observations
Macro Risks
Macroeconomic risks remain stable at a medium level. GDP growth projections across major geographical regions hold at around 1.3% for the next four quarters, while global inflation forecasts have slightly eased, averaging 2.1%, down from 2.2% in the previous quarter. In parallel, average monetary policy rates across major currencies declined marginally, and the contraction of major central banks’ balance sheets slowed slightly compared to previous periods. The weighted average of 10-year swap rates for key currencies also dropped slightly relative to the prior quarter. Fiscal balances for major economies improved, narrowing from -4.4% to -3.7% in Q1 2024, while the credit-to-GDP gap remained steady at approximately -18.2%. Unemployment rates are also stable based on the most recent data from Q2 2024.
Source: Bloomberg Finance L.P.
Source: Refinitiv
Source: Refinitiv
Source: Bloomberg Finance L.P.
Source: Refinitiv
Source: BIS
Source: Bloomberg Finance L.P.
Credit Risks
Credit risks remain steady at a medium level. In Q3 2024, credit default swap (CDS) spreads for government, financial secured, and non-financial corporate bonds held steady, while spreads for financial unsecured corporate bonds narrowed. In Q2 2024, insurers’ median exposures to financial unsecured, to government bonds and to non-financial bonds increased slightly, while their exposure to financial secured bonds remained broadly unchanged compared to the previous quarter. As of Q2 2024, insurers’ median investment allocations as a share of total assets stood at approximately 25% in government bonds, 9.7% in financial unsecured bonds (up from 9.1%), 1.4% in financial secured bonds, and 10.3% in non-financial bonds (up from 9.8%). The indicator on fundamental credit risk in the non-financial corporate sector remained stable, based on Q1 2024 data. Insurers’ exposure to mortgages and loans remains low, except for the upper tail of the distribution, which increased slightly (median at 0.3% of total assets, with the 75th percentile rising from 2.5% to 3.4% in Q2 2024). Meanwhile, the household debt-to-income ratio in the Euro area declined by 2 percentage points, to 86%, based on Q1 2024 data. Overall, the credit quality of insurers’ investments remains high, with the median credit quality step (CQS) around 2, equivalent to an AA rating from S&P. The median share of low-rated investments (CQS > 3) stood at 1.2% in Q2 2024.
Source: Refinitiv, QFG
Source: Refinitiv, QFG
Source: Bloomberg Finance L.P., QFG
Source: Bloomberg Finance L.P., QFG
Source: QFG, ECB
Source: QFG
Source: QFG
Source: BIS, Bloomberg Finance L.P.
Market Risks
Market risks remain elevated. Although bond market volatility eased at the end of September, it continues high by historical standards. The market turmoil experienced in August was brief, with equity volatility quickly returning to levels seen in previous quarters. Insurers’ median exposure to bonds and equities remained stable at 51% and 6% of total assets, respectively, in Q2 2024. Meanwhile, real estate prices continued to decline, though at a slower rate compared to the prior quarter, and insurers’ exposure to property remains limited overall, with a median of 3.2% of total assets. Asset concentration, as measured by the Herfindahl-Hirschman Index, slightly increased in Q2 2024. The latest data from 2023 indicates that the spread of investment returns over guaranteed interest rates for life insurers turned positive, driven by favourable market conditions. The median duration mismatch remained broadly stable in 2023 compared to the previous year, considering both the modified duration of assets and liabilities.
Source: Bloomberg Finance L.P., QFG
Source: Bloomberg Finance L.P., QFG
Source: QFG, ECB
Source: ARS
Source: QFG
Source: Assets: QFG, Liabilities: AFG
Liquidity & Funding
Liquidity and funding risks remain stable at a medium level. In Q2 2024, insurers’ median cash holdings remained steady at around 0.7% of total assets, and the median liquid asset ratio was unchanged from the previous quarter, standing at 45% of total assets. In contrast, insurers’ lapse rates rose in 2023, with the median rate reaching approximately 5% (4% in 2022). Despite the increase in lapses, the latest annual data indicates an overall positive cash flow position in 2023, measured by the ratio of net cash flows to liquid assets. Meanwhile, funding conditions in the catastrophe bond market improved, with issuance volumes increasing in Q2 2024 and the multiplier (spread/expected annual loss) declining. Insurers’ bond issued volumes are around 5.5 millions and an average ratio of coupons to maturity around 0.3 in Q3 2024.
Source: QRS
Source: QRS
Source: QFG
Source: ARS
Source: ARS
Source: Bloomberg Finance L.P.
Profitability & solvency
Solvency and profitability risks remain stable at a medium level, though solvency ratios for both insurance groups and life undertakings deteriorated slightly in Q2 2024. The median solvency ratio for insurance groups declined from 214% in Q1 2024 to 200% in Q2 2024. For life undertakings, the median solvency ratio decreased modestly, while the ratio for non-life undertakings remained stable (down 7 percentage points to 231% for life, and up 3 percentage points to 212% for non-life). The median non-life combined ratio held steady at 97%. According to the latest available semi-annual data, profitability measures such as the return on assets, return to premiums, and return on excess of Asset over Liabilities remain broadly unchanged compared to the previous assessment with regards to the median values.
Source: QRS
Source: ARS
Source: QFG
Source: QFG and ARG
Source: QFG and ARG
Source: QFG
Source: QFG
Source: QRS
Source: QRS
Source: ARS
Source: QFG
Source: QRS
Interlinkages & imbalances
Interlinkages and imbalances risks remained stable at a medium level. Insurers’ median exposure to banks rose by 2 percentage points to 16% of total assets, while exposures to other insurers (1.2%) and to financial activities other than banking and insurance (23%) remained largely unchanged compared to the previous quarter. Insurers’ median exposure to domestic sovereign debt and derivatives also held steady at around 8% and 0.3% of total assets, respectively. The share of premiums ceded to reinsurers was broadly stable, with the median at 4.4% in Q2 2024, down from 4.8% in the previous quarter.
Source: QFG
Source: QFG
Source: QFG
Source: QRS
Source: QFG
Source: QFG
Source: QFG
Insurance Risks
Insurance risks remain stable at a medium level. Year-on-year premium growth for life and non-life business remained positive in Q2 2024 (with a median growth of 6% and 9%, respectively). The distribution of the loss ratio moved upwards, with the median at 64% in Q2 2024.
Source: QFG
Source: QFG
Source: QRS
Market perceptions
Market perceptions remain at a medium level but with an increasing trend. Life and non-life insurance stocks outperformed the market at the end of September. While the median price-to-earnings ratio for insurance groups held steady in the same period, the upper tail of the distribution moved upwards. The distribution of insurers’ CDS spreads remained largely unchanged from the previous quarter, while there were two positive changes in external rating outlooks for insurance groups in the sample.
Source: Refinitiv
Source: Refinitiv
Source: Refinitiv
Digitalisation & cyber risks
Digitalization and cyber risks remain at a medium level, with an increasing risk outlook for the next 12 months. The materiality of these risks for the insurance sector, as assessed by supervisors, slightly decreased in Q3 2024, driven by a reduction in the perceived probability of risk materialization. Cyber negative sentiment slightly increased, reflecting growing concerns among insurers during the same quarter. Additionally, the number of global cyber-attacks affecting all sectors, as measured by publicly available data, declined in Q4 2023 compared to the previous quarter.
Source: EIOPA’s Insurance Bottom-up Survey.
Source: University of Maryland CISSM Cyber Events Database, EIOPA calculations.
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.
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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