The European Insurance and Occupational Pensions Authority (EIOPA) published today its December 2022 Financial Stability Report which sheds light on key developments and risks in the European insurance and pension sectors. Additionally, the report presents four topical focuses, notably about the impact of rising inflation and interest rates on insurers’ financial position, insurers’ use of derivates and related liquidity needs, the growing relevance of life portfolio transfers as well as non-life insurers’ underwriting exposure to physical climate change risk.

Over the past three years, European economies have faced a sequence of exceptional shocks related to the global pandemic and the effects of the war in Ukraine, which aggravated inflationary pressures and dampened the continent’s growth prospects.

Despite the challenging environment, insurers and pension funds have thus far weathered the shocks well. Entities have sought to adapt to the changing landscape and reduced their vulnerabilities for instance by optimising risk management processes via portfolio transfer and product design.

Nevertheless, risks connected to claims inflation, the potential widening of corporate and sovereign spreads, the deteriorating macroeconomic outlook and liquidity management in a period of rapidly rising interest rates remain and require monitoring.

Source – EIOPA