This Risk Dashboard, based on Solvency II data, summarizes the main risks and vulnerabilities in the European Union's insurance sector through a set of risk indicators of the second quarter of 2022. The data is based on financial stability and prudential reporting collected by EIOPA - The European Insurance and Occupational Pensions Authority, from 94 insurance groups and 2198 solo insurance undertakings.
Risk Dashboard October 2022 (Q2-2022 Solvency II Data)
Note: The structural break as of Q1 2020 related to the Brexit withdrawal agreement and represented with a dashed line indicates a break in the number of undertakings of the time series and rebalance of the country weights. Additionally, adjusted time series for EU27 before Q1 2020 are also disclosed to reflect potential variations driven by the structural break in the sample.
Macro risks remain a key source of concern amid a further decrease in global GDP growth expectations and high CPI forecasts for the main geographical areas, even as unemployment remains low. The weighted average of 10-year swap rates increased. Central banks continue the normalization of their monetary policy.
Market risks are currently at a high level. Volatility in bond and equity markets continue to top last year's average. Property prices remain at the same level. Insurers' median exposure to bonds and equity remain relatively unchanged while median exposure to property slightly increased in Q2 2022. Credit risks remain relatively moderate. CDS spreads remain at low levels for government bonds and financial bonds while further increasing for non-financial corporate bonds in the third quarter of 2022. Insurers' relative exposure to different bonds categories remained broadly stable while slightly decreasing for government bonds in Q2. The median average credit quality of insurers' investments remained stable.
Profitability and solvency risks remain constant with returns for insurers decreased in the second quarter of 2022 across all three return indicators (return on excess of assets over liabilities, return on assets and return on premiums). The increase of interest rates since the beginning of 2022 may be the main driver behind insurers' high SCR ratios.
Due to the current increase of interest rates, insurers booked market to market losses on derivatives given that they are typically positioned to hedge against interest rates declines.
Regarding market perceptions, insurance life and non-life stocks underperformed. The median price-to-earnings ratio of insurance groups is largely unchanged. The median of CDS spreads of insurers further increased even as insurers' external ratings remained broadly stable since the last assessment.
On climate risks, insurers maintained their relative exposure to green bonds while the ratio of investments in green bonds over the total green bond outstanding slightly decreased. The growth of green bonds in insurers' portfolios has decreased, while the growth of green bonds outstanding is stable.
The materiality of digitalization and cyber risks for insurance as assessed by supervisors decreased slightly. Nevertheless, cyber security issues and concerns of a hybrid geopolitical conflict remain. The cyber negative sentiment indicates an increased concern in the third quarter of 2022 while the frequency of cyber incidents decreased compared to the same quarter last year.