While the current European economic outlook is rather positive, the key risks for the insurance companies and occupational pension funds remain: vulnerable macroeconomic climate, low yield environment and credit risks arising from the exposure to sovereigns and financial institutions. Heavily indebted private and public sectors; high unemployment and market fragmentation are the main sources of vulnerability. The prolonged low interest rate environment remains a key risk in many countries. It has a negative impact on the ability of insurers and pension funds to maintain long9term profitability and stable financial profiles. As a consequence of low interest rates insurers and pension funds are “searching for yields” and, therefore, allocate their resources in riskier assets.

Attracted by higher profit margins, insurers continued to expand their activities in China, South-East Asia, Latin America and some emerging European countries and, thus, to increase their exposure to political, legal and other risks on these markets.

In the insurance sector EIOPA observes a subdued growth in premiums. According to EIOPA’s projection, this trend will continue until at least the end of 2015. As a result of low interest rates, life insurers are lowering guarantees and focusing on unit-linked products. In the medium-term it might be difficult for insurers to keep their profitability, which still remains relatively robust.

Profitability of the global reinsurance sector is rather high. The demand from investors for catastrophe bonds continues its upward trend and reached its highest level ever.

Low rates put a significant pressure on the profitability of the European occupational pensions sector. Structural budget deficits are forcing governments to shift responsibility for pensions from the state to individuals.

The first thematic article of the Report analyses the relationship between written premiums’ growth in the insurance sector and key macroeconomic determinants on the bases of panel data covering 30 European countries. The second article addresses the issue of Global Systemically Important Insurers.

Gabriel Bernardino, Chairman of EIOPA, said: “In order to improve tools and methodologies used in our Financial Stability Report, more reliable evidence is required. This need will be met by the improved reporting of supervisory data under Solvency II that will become applicable as of 1 January 2016. We expect that our new applied research will further benefit from discussions among supervisors, industry and academia”.

EIOPA Financial Stability Report May 2014: http://bit.ly/1nMW5BR

Note for Editors:
European Economic Area (EEA) consists of 28 EU Member States as well as Iceland, Liechtenstein and Norway.
New analytical tools used in the Financial Stability Report refer to the econometric models developed by EIOPA that aim to quantify the scope of the risks identified by the Authority (for example negative impact on market growth; exposure to emerging markets etc);
Unit,linked product – insurance contract, which provides a combination of life insurance and investment, where the risks for the investment part are borne by the policy holder.
The European Insurance and Occupational Pensions Authority (EIOPA) was established on 1 January 2011 as a result of the reforms to the structure of supervision of the financial sector in the European Union.
EIOPA is part of the European System of Financial Supervision consisting of three European Supervisory Authorities, the National Supervisory Authorities and the European Systemic Risk Board. It is an independent advisory body to the European Commission, the European Parliament and the Council of the European Union.
EIOPA’s core responsibilities are to support the stability of the financial system, transparency of markets and financial products as well as the protection of insurance policyholders, pension scheme members and beneficiaries.