On 14 December 2012, the European Insurance and Occupational Pensions Authority (“EIOPA”) published its financial stability report for the second half of 2012 (the “Report”). The Report concerns the financial stability of the insurance, reinsurance and occupational pension fund sectors in the EEA and concludes that these sectors could face a “significantly negative outlook over the medium term due to macroeconomic uncertainties and the fragile state of financial markets”.
For the insurance sector, the Report notes that premium growth has been observed overall, although with wide variations between companies, and the profitability of companies remains relatively stable. It also notes that Solvency I capital ratios are still at comfortable levels but that this should not give rise to complacency as Solvency I is not market or credit risk sensitive and so does not give the full picture.
For the reinsurance sector, profitability is expected to remain under pressure due to excess capacity in the market and reduced demand resulting from the weak global macroeconomic environment. Losses arising from Hurricane Sandy are yet to be quantified but are expected to have a significant impact in the market.
For the pensions sector, EIOPA’s key concerns are funding shortages and the increased longevity of pensioners.