Report on the financial conditions and financial stability of the insurance and occupational pension fund sector in the EU/EEA
Today CEIOPS publishes its half-year report on the financial conditions and financial stability of the insurance and occupational pension fund sector in the EU/EEA, covering developments in the insurance, reinsurance and occupational pension fund markets for the past periods as well as some preliminary forecasts for 2009.
CEIOPS findings confirm that insurance companies, in their role as important investors, have increasingly been affected by the financial turmoil, followed by the financial crisis and yet the economic recession. Strong negative and volatile developments on stock markets and spread widening meant a substantial decline in investment income for insurance undertakings. Especially the results of the life insurance business are highly dependent on the yield of the investment portfolio. As a consequence the return on equity figures dropped substantially in 2008.
Hence in 2008 the financial performance of most insurance undertakings was weaker than before due to low investment yields and flat or decreased premium income. After almost two years of unprecedented crisis the year 2009 will again be especially challenging due to a prolonged period of low interest rates and deteriorating macroeconomic environment that might not only further reduce investment income but likely reduce demand for certain lines of insurance.
On the other hand, insurance undertakings come from a strong solvency position and there are positive signals such as increasing premiums in certain lines of business as a reaction to the crisis to appropriately reflect higher risks in the market.
The financial turmoil has had a significant impact on the pension fund sector as well, primarily with regard to their role of institutional investors. Sharp drops in the equity markets and increasing credit spreads have put their investment portfolios under severe strain. However, the impact has not been as severe as seen in other financial sectors as the long term nature of the liabilities affords some protection in this respect. Policy responses from supervisors in light of the downturn have focused on the flexibility within the current framework and the differing security mechanisms available.
CEIOPS’ next financial stability report will be published late autumn 2009.
Direct hyperlink to the Report
CEIOPS findings confirm that insurance companies, in their role as important investors, have increasingly been affected by the financial turmoil, followed by the financial crisis and yet the economic recession. Strong negative and volatile developments on stock markets and spread widening meant a substantial decline in investment income for insurance undertakings. Especially the results of the life insurance business are highly dependent on the yield of the investment portfolio. As a consequence the return on equity figures dropped substantially in 2008.
Hence in 2008 the financial performance of most insurance undertakings was weaker than before due to low investment yields and flat or decreased premium income. After almost two years of unprecedented crisis the year 2009 will again be especially challenging due to a prolonged period of low interest rates and deteriorating macroeconomic environment that might not only further reduce investment income but likely reduce demand for certain lines of insurance.
On the other hand, insurance undertakings come from a strong solvency position and there are positive signals such as increasing premiums in certain lines of business as a reaction to the crisis to appropriately reflect higher risks in the market.
The financial turmoil has had a significant impact on the pension fund sector as well, primarily with regard to their role of institutional investors. Sharp drops in the equity markets and increasing credit spreads have put their investment portfolios under severe strain. However, the impact has not been as severe as seen in other financial sectors as the long term nature of the liabilities affords some protection in this respect. Policy responses from supervisors in light of the downturn have focused on the flexibility within the current framework and the differing security mechanisms available.
CEIOPS’ next financial stability report will be published late autumn 2009.
Direct hyperlink to the Report