The risks facing the insurance and pensions sectors in the European Union have remained fairly stable since the summer, with profitability and solvency showing relative resilience, the regulator said today.
However, Gabriel Bernardino, chair of the European Insurance and Occupational Pensions Authority, urged the industry not be complacent and said latent risks could not be ignored.
'The main risks, namely, the low-yield environment, the weak macro-economic climate and credit risk from exposure to sovereigns and financial institutions remain mostly unchanged,' he wrote in his foreword to EIOPA's latest half-year financial stability report.
The report noted that low interest rates remained the most prominent risk, putting pressure on life insurers' and occupational pension funds' ability to pay guaranteed rates of return. This was not helped by fragile and deflationary economic conditions in many European countries, which last month prompted a further cut in eurozone interest rates.
In the insurance sector, weak macroeconomic growth and low yield continued to constrain sales and was pushing some firms to look outside their national boundaries, the report stated.
The global reinsurance sector, however, continued the robust growth and major losses from natural catastrophes compared favourably with previous years.
In the pensions sector, the report noted a shift away from defined benefit schemes towards defined contribution in many countries. The low interest rate environment also made it more difficult for DB schemes to meet the guaranteed return.
'To some extent pension fund can compensate for low yields by increasing the annual interest premium,' EIOPA said.
'These is, however, a risk that premium increased will reinforce the current trend of employers in the private sector closing down their defined benefit plans.'
In the foreword, Bernardino also highlighted the recent agreement on the Omnibus II Directive and the confirmation of the starting date for Solvency II of January 1 2016.
'There is much to do to be ready for this date and the area of financial stability analysis We need to re-examine the metrics that we use for assessing risk exposures, resilience and other aspects of financial stability analysis,' said Bernardino.
'Solvency II will provide us with a rich source of information for stability analysis and I look forward to further developments in this area.'
