RDB update 04.2019
a cura di Silvia Dell’Acqua

Mag 17 2019
RDB update 04.2019  a cura di Silvia Dell’Acqua

EIOPA has recently (11.04.2019) published the risk dashboard (RDB) update at April 2019.

The RDB is published on a quarterly basis, showing the level of risk for 8 (=7+1) risk categories. The latest outcome is reported in the table below, compared to the previous one (January 2019):

Some comments

  1. Macro risks [medium, stable]

This is an overarching category affecting the whole economy, which considers economic growth, monetary policies, consumer price indices and fiscal balances.

The economic environment remains fragile because of both the continuous decline of the GDP growth, which has been revised downwards across most geographic areas (the indicator is a weighted average over Euro Area, UK, Switzerland, US and BRICS) and the low swap rates, decreases from the previous quarter (1.20%, -0.10%) due to slight declines in swap rates for all the currencies considered (EUR, GBP, CHF, USD). These outcomes point out a potential economic slowdown, together with the decrease in the inflation forecast (CPI; 1.62%, -0.30%), that remains a concern going forward. The unemployment rate decreases only very slightly compared to the previous quarter. Major central banks continue to reduce the pace of quantitative easing and the rate of expansion of their balance sheets has decreased (0.9%, -2%).

  • Credit risks [medium, stable]

This category measures the vulnerability to the credit risk by looking at the relevant credit asset classes exposures combined with the associated metrics (e.g. government securities and credit spread on sovereigns). Since the previous assessment, spreads have decreased across all corporate bond segments, while the average credit quality of insurers’ investments has remained broadly stable, corresponding to an S&P rating between AA and A. The exposures of the Insurers in different asset classes remain quite stable and around

  • 29% in European sovereign bonds, whose CDS spreads has slightly decreased
  • 13% in non-financial corporate bonds, whose spreads have decreased
  • 8% in unsecured financial corporate bonds, whose spreads has decreased
  • 3% in secured financial corporate bonds, whose spreads has decreased
  • 0.7% in loans and mortgages
  • Market risks [medium, stable]

This vulnerability of the insurance sector to adverse developments is evaluated based on the investment exposures, while the current level of riskiness is evaluated based on the volatility of the yields together with the difference between the investment returns and the guaranteed interest rates. The market risks remain stable, reflecting the stability of the portfolios’ allocations of insurers, where the volatility of the bonds, largest asset class (60% of exposure), and equity market (7%) decreased, while the property one (2.9% exposure) remained stable.

  • Liquidity and funding risk [medium, stable]

The vulnerability to liquidity shocked is monitored measuring the lapse rate, the holding in cash and the issuance of catastrophe bonds (low volumes or high spreads correspond to a reduction in the demand which could forma a risk). The median liquid assets ratio has registered a small increase from the previous quarter (67.1%, +0.8%), as well as the average ratio of coupons to maturity, while the issued bond volumes increased significantly from 3bln to 6.8bln euro. Lapse rates in life business are broadly stable, showing a median lapse rate around 2.6% (slightly decreased).

  • Profitability and solvency [medium, stable]

The solvency level is measured via SCR and quality of OF, while the profitability via return on investments and combined ratio for the life and non-life sectors. The median SCR ratios for non-life solo companies remained stable, while the median SCR ratio for life companies has slightly decreased (180%, -2.5%).

  • Interlinkages and imbalances [medium, stable]

Interlinkages are assessed between primary insurers and reinsurers, insurance and banking sector and among the derivative holdings. The exposure towards domestic sovereign debt is considered as well. No major changes have been reported over time in exposures of insurance groups to different parts of the financial sector.

  • Insurance (underwriting) risk [medium, increasing]

Indicators for insurance risks are gross written premia, claims and losses due to natural catastrophes. The increase of the risk in this category, which has moved from low to medium, is due to a further increase in the catastrophe loss ratio (6.7%, +2.6%) driven by the natural catastrophes occurred in the US (California wildfire and hurricane Michael), which has impacted the reinsurers’ technical results.

  • Market perception [medium, stable]

The market perception remains constant at medium level. The quantities assessed are relative stock market performances (insurance stock outperformed the Stoxx 600 both in life and non-life segments), price to earnings ratio (increased from the previous assessment: median 12.5%, +0.9%), CDS spreads (median value decreased to 55%, -13.2%) and external rating outlooks (unchanged from the last quarter).


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