The insurance and pensions sectors still face significant risks. The European Insurance and Occupational Pensions Authority (EIOPA) has published a report on financial stability in the insurance and pensions sectors in Europe.
The Financial Stability Report December 2013 highlighted three key problems:
- A prolonged low yield environment
- A weak macroeconomic climate
- Contagion risk from exposure to sovereigns and financial institutions.
In the insurance sector, the weak macroeconomic climate and low yield environment has limited sales and is prompting firms to seek growth opportunities in regions such as Latin America or South-Eastern Asia.
Reinsurance stays strong
The global reinsurance sector however has continued its robust growth. Major losses from natural catastrophes in the first half of 2013 seem to be relatively low compared to previous years. Profitability for the reinsurance sector has been sustained, but remains under pressure due to the low yield environment.
Issuance of Insurance-Linked Securities (ILS) reached its highest level since 2007, with large capital inflows across the sector. As a result global reinsurer capital increased to an all-time high. The availability of so much reinsurance capacity creates a strong competitive environment.
Pensions shift
In the occupational pension sector, defined benefit schemes still dominate, but the sustained shift towards defined contribution schemes in many countries continues. Investment allocation of pension funds has been fairly stable over time. However, the low interest rate environment makes it more difficult for defined benefit schemes to meet the guaranteed return.
Read the full report.