Loading...


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.


July 2024 Insurance Risk Dashboard

The reference date for company data is Q1-2024 for quarterly indicators and 2023-YE for annual indicators. The cut-off date for most market indicators is the end of June 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 are stable at medium level. The forecasts for GDP growth across major geographical regions keep improving, with the average forecast at around 1.3% in the second quarter of 2024 (0.9% in the previous quarter), while the forecasts of global inflation slightly declined on average to 2.2% (2.3% in the previous quarter). Relatedly, monetary policy started loosening again, with policy rates slightly decreasing on average and balance sheets of major central banks contracting less than in previous periods. The weighted average of 10-year swap rates for major currencies increased slightly compared to the previous quarter. Fiscal balances for major economies deteriorated from -3.4% to -4.4% in the fourth quarter of 2023 and the credit to GDP gap widened by 1 p.p. to -18.7%. Unemployment rates remained stable according to the latest data from the first quarter of 2024.



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: BIS

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. In Q2-2024, the credit default swaps (CDS) spreads for government bonds remained unchanged and at low level and those for financial secured bonds slightly decreased. On the other hand, CDS spreads for financial unsecured and non-financial bonds slightly increased. In Q1-2024, insurers’ median exposures to government and corporate bonds were broadly stable compared to the previous quarter. Median investment in government bonds is at around 25% of total assets, in financial unsecured bonds at 9%, in financial secured bonds at 1.4% and in non-financial bonds at 9.8%. The indicator on fundamental credit risk in the non-financial corporate sector, signaling potential risk mis-pricing, became less negative based on Q4-2023 data. Insurers’ exposure to mortgages and loans remains low (median at 0.3% of total assets for Q1-2024), with the household debt-to-income ratio for the euro area decreasing by 1 p.p. to 88% based on the latest available data (Q4-2023). Overall, the credit quality of insurers’ investments is high, with the median credit quality step (CQS) at around 2, corresponding to an AA S&P rating. The median share of low rated investments (CQS>3) is at 1.2% in Q1-2024.



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 remain at high level. Volatility in the bond and equity markets increased in Q2-2024, compared to the previous quarter, while the median exposures of insurers to bonds and equity are stable (51% and 6% of total assets in Q1-2024, respectively). Real estate prices continued to decline across the euro area in Q4-2023 (-8%) driven by commercial real estate, but exposures to property remain limited overall. Asset concentration as measured by the Herfindahl Hirschman Index remained broadly stable in Q1-2024. Latest available annual data shows that the spread of investment returns over guaranteed interest rates turned positive in 2023, driven by positive market returns. The median duration mismatch is broadly stable in 2023 compared to the previous year, when considering both the modified duration of the assets and the liabilities.



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.
Source: ARS

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

Note: Distribution of indicator (interquartile range, median). EIOPA calculates the indicator based on the modified duration of the assets and the liabilities.
Source: Assets: QFG, Liabilities: AFG

Liquidity & Funding

Liquidity and funding risks remain stable at medium level. In Q1-2024, insurers’ median cash holdings were stable, with a slight decrease in the upper end of the distribution. The median liquid asset ratio has slightly decreased in the same quarter. Insurers’ lapse rates have increased in 2023, with the median lapse rate at around 5%. Latest available annual data shows an overall positive cash flow position in 2023, as measured by the ratio of net cash flows to liquid assets. Funding conditions in the catastrophe bond market slightly deteriorated, with issuance volumes decreasing in Q1-2024 and the multiplier (spread/expected annual loss) increasing. On the other hand, insurers’ bond issuance observed slightly better conditions, with the average coupon to maturity decreasing in Q2-2024.



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: QFG

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

Solvency and profitability risks are unchanged at medium level, but solvency ratios for both groups and solo undertakings show a slight deterioration in Q1-2024. The median solvency ratio for insurance groups decreased from 227% in Q4-2023 to 214%. Similarly, the median solvency ratio for life and non-life undertakings slightly decreased (by 1 p.p. to 238% and by 8 p.p. to 209%, respectively). The median non-life combined ratio slightly improved in the same quarter, moving from 99% to 97%. Latest available annual data for the return on investments of life insurance undertakings (excluding unrealised gains and losses) shows an improvement across the entire distribution in 2023, driven by positive market returns.




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

Note: Distribution of indicator (interquartile range, median). The indicator excludes unrealised gains and losses. 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: 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 Q1-2024. The median exposures of insurers to banks (14% of total assets), insurers (1.4%) and financial activities other than banking and insurance (23%) are broadly stable compared to the previous quarter. Insurers’ median exposure to domestic sovereign debt and to derivatives are also unchanged, at around 8% and 0.3% of total assets respectively. The share of premiums ceded to reinsurers is also broadly stable, with the median at 4.8% in Q1-2024 (5.3% in the previous quarter).



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 year-on-year premium growth for life and non-life business increased in Q1-2024 across the whole distribution. The median loss ratio decreased.



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. Life (non-life) insurance stocks underperformed (overperformed) the market, while the median price-to-earnings ratio of insurance groups in the sample slightly increased in Q2-2024. The distribution of insurers’ CDS spreads moved upwards in the same quarter, but at the same time there were three positive changes in external rating outlooks for insurers in the sample.



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, with an increasing risk outlook for the next 12 months. The materiality of these risks for insurance as assessed by supervisors slightly increased in Q2-2024, driven by an increase in their perceived probability of materialisation. Cyber negative sentiment indicates an increasing concern from insurers in the same quarter. The number of global cyber-attacks impacting all sectors of activity, as measured by publicly available data, decreased since the same quarter of last year (latest available information refers to Q4-2023).



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 from listed insurers.
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.




 

EIOPA | Westhafen Tower, Westhafenplatz 1 | 60327 Frankfurt | Germany

Tel: +49 69-951119-20

info@eiopa.europa.eu | https://www.eiopa.europa.eu

Linkedin Twitter Facebook YouTube