EIOPA publishes 2024 Financial Stability Report

On 27 June 2024, the European Insurance and Occupational Pensions Authority (EIOPA) released its June 2024 Financial Stability Report. The report provides a detailed analysis of key developments and risks within Europe’s insurance and occupational pensions sectors amidst a challenging macroeconomic landscape characterised by high geopolitical tensions, upcoming elections in major economies, and uncertainties about the economic outlook.

• Resilience Amidst Challenges: Despite subdued growth and cautious consumer spending, European insurers and occupational pension funds have demonstrated resilience. The insurance sector remains well-capitalised, with median Solvency Capital Requirement (SCR) ratios for life insurers improving to 243% and for composite undertakings to 225% in 2024, alongside increased profitability levels despite the transition from low to higher interest rates.
• Economic Environment: Economic activity slightly improved in the euro area in the first quarter of 2024 but is expected to remain subdued due to tight financing conditions and cautious consumer spending.
• Market Dynamics: Financial markets experienced high swap rates and volatility, with interest rates peaking at in Q3 2023. Sovereign bond yields decreased overall, while spreads narrowed unevenly. Equity markets performed strongly, supported by robust earnings and slowly declining interest rates.

• Insurance Sector: The insurance sector maintained solid capitalisation in 2023, with improved SCR ratios and profitability. Non-life insurers showed solid SCR ratios driven by rising claims costs and inflation adjustments. Liquidity remained stable, though some insurers faced increased lapse rates.
• Reinsurance Sector: The reinsurance sector performed well in 2023, with written premiums increasing, improved underwriting performance, and robust solvency positions. The issuance of the first cyber catastrophe bonds in 2023, totalling USD 415 billion, marked a significant development.
• Occupational Pensions Sector: The occupational pensions sector remains resilient but sensitive to monetary policy shifts. Pension funds prioritised liquidity in response to inflation and banking sector turmoil in early 2023.

• Climate and Cyber Risks: The report highlights ongoing efforts to address climate risks, with consultations on recalibrating natural catastrophe risks under Solvency II to reflect climate change impacts. In 2023, insured losses from natural disasters were estimated between USD 95-108 billion globally.

For further information please contact Nicholas Smith ( [email protected] )