EIOPA PUBLISHES ITS SECOND HALF-YEAR FINANCIAL STABILITY REPORT

The European Insurance and Occupational Pensions Authority (EIOPA)
published today its second half-year report for 2012 on the financial
stability of the insurance and institutions for occupational retirement
provision (IORPs) sectors in the European Economic Area (EEA).

In the report EIOPA states that financial soundness of the European
insurance and occupational pensions sectors could face a significantly
negative outlook over the medium term due to macroeconomic uncertainties
and the fragile state of financial markets. Despite recent positive
developments in financial market prices, action by the ECB and coordinated
political initiatives, the risks to financial stability remain high. This
is particularly pertinent when considering the increasing likelihood of
long-lasting low interest rates in a number of global economies, along
with capital market volatility.

In the insurance sector premium growth has been observed overall, but the
variation across companies is large. The profitability of undertakings
remains relatively stable and Solvency I capital ratios are still at
comfortable levels. This should not give rise to complacency, however, as
Solvency I, is not market or credit risk sensitive. It does not allow
supervisors to have a full picture of the underlying market and credit
risks to which undertakings are exposed.

Reinsurers' profitability in the coming months will likely remain under
pressure due to excess capacity in the market, as well as reduced demand
for reinsurance services resulting from the weak global macroeconomic
environment. Natural catastrophe losses in the course of the first 9
months of 2012 have been relatively moderate, but this trend was
interrupted by the exceptionally wide-ranging Hurricane Sandy that
occurred in the fourth quarter 2012. Initial estimates vary, but one
provisional estimate anticipates losses of up to USD 52 bn with as many as
200,000 claims for wind damage and 20,000 claims for flood damages filed
by policyholders.

The analysis of the IORPs data shows a worrying decrease in the IORPs'
funding positions, especially for larger defined benefit (DB) systems such
as those in the UK and the Netherlands. The UK statistics now show funding
levels below 80%. A key driver behind these developments is the low yield
environment, since low discount rates increase the current market value of
the liabilities. Taking a longer-term, forward looking perspective,
improved longevity of pensioners will also weigh negatively on funding
levels in the future.

The Financial Stability Report December 2012 and the Statistical Annex
Insurance 2011 can be viewed on EIOPA website (Link:
https://eiopa.europa.eu/publications/financial-stability/index.html ).


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