European insurers under threat of declining financial markets

Magazine Issue:

The year 2014: upsides and downsides [3]

Magazine date:

Jan 2015

The European Insurance and Occupational Pensions Authority (EIOPA) estimates that sustained low interest rates, sovereign debt and the contraction of economic activity are the three main risks to the insurance industry.

Image provided by Fotolia. Used with permission from Microsoft Stress tests conducted in 2014 show that the occurrence of these risks would have a negative impact on insurers. A "cross" shock involving a fall in financial markets combined with a decline of interest rate for risk-free assets stands as a threat to insurers.

This is particularly true in life insurance where profitability is threatened by the increase in the technical reserves and the persistence of low rates of interest. EIOPA has concluded that the value of certain assets is overrated in relation to the risk they pose, thus rendering possible the collapse of financial markets.