Eiopa low interest rate environment
Today the European Insurance and Occupational Pensions Authority (EIOPA) has published a Supervisory Statement on the impact of the ultra-low/negative interest rate environment. This environment is significantly impacting the insurance sector in the EU, in terms of asset allocation, reinvestment risk, profitability and solvency. EIOPA has focused to date on insurers but the low interest rate environment is also having an impact on occupational pension funds. Supervisory Statement on the impact of ultra-low/negative interest rate environment Supervisory Statement on the impact of the ultra-low/negative interest rate environment | Eiopa About EIOPA aims to build up a consistent and convergent approach towards the scope and scale of the risks arising from the low interest environment. This approach will help national competent authorities to identify early those insurance companies that have a significant exposure to the risks posed by low interests and to better respond to the risks posed by low interest rates. This statement should be read along with the background note of EIOPA, which focuses on the supervisory powers and measures and the reactions of companies to the low interest rate environment. The statement highlights that the ultra-low or negative interest rate environment constitutes one of the most important sources of systemic risk for insurers for the coming years. EIOPA recommends a coordinated supervisory response to the prolonged low interest rate environment. NSAs should actively assess the potential scope and scale of the risks arising in this environment, paying special attention to those insurers identified as facing greater exposure. In 2013, EIOPA published an Opinion on Supervisory Response to a Prolonged Low Interest Rate Environment. In the 2014 Insurance Stress Test EIOPA included a low yield module and carried out a Low Interest Rate Environment Stocktaking Exercise, which was disclosed together with the stress test results.
In the current environment, taking into account observed rates for higher-maturity financial instruments leads to a significantly lower risk-free rate curve past 20
interest rate developments. In the current economic environment a lower CoC- factor is justified (see also the response of Insurance Europe). Q3.4. What is your On top of this risk-free rate, EIOPA allows under specific circumstances to add a “ volatility is to moderate the effect of deteriorating bond prices as a result of low bonds, which become more prevalent in a negative interest rate environment 6 Jan 2020 EIOPA said the entities' adaptation to macroeconomic circumstances, such as the persistent low interest rate environment, “may imply a shift When interest rates are as low as they are since the financial EIOPA approach) but the convergence to the UFR is gradual and economic environments.
interest rate developments. In the current economic environment a lower CoC- factor is justified (see also the response of Insurance Europe). Q3.4. What is your
dustry to a prolonged period of low interest rates (EIOPA 2014, 2016b). Based on EIOPA's last Financial Stability Report (EIOPA 2018), because of the prolonged low interest rate environment, the pro¯tability of the insurance industry has expe-rienced a signi¯cant deterioration and its solvency is at risk. Nevertheless, investi- The insurance industry forms a significant part of the EU’s financial sector in managing assets that, according to EIOPA, are valued at around two-thirds of the EU’s annual GDP. The insurance market relies mainly on two main types of product: life and non-life insurance. However, comparing with these scenarios, the schemes demonstrated relative resilience to a permanent decrease of 20% in mortality rates. The test also found defined contribution (DC) plans were sensitive to the current low interest rate environment, resulting in lower returns on assets in the accumulation phase. Opinion: Low interest rates are compounding the big problems facing pension funds but there are limits to returns they can safely generate in a low interest-rate environment. Policy interest rates in the euro area have fallen to close to 0% – and negative in case of our deposit facility – while we have seen the 10-year German government bond yield drop as low as 0.075%, with at one point up to about 36% of euro area euro-denominated government bonds in negative territory. Low interest rates are becoming a threat to the stability of the life insurance industry, especially in countries such as Germany, where products with relatively high guaranteed returns sold in the past still represent a prominent share of the total portfolio. This contribution aims to assess and quantify the effects of the current low interest rate phase on the balance sheet of a
This statement should be read along with the background note of EIOPA, which focuses on the supervisory powers and measures and the reactions of companies to the low interest rate environment. The statement highlights that the ultra-low or negative interest rate environment constitutes one of the most important sources of systemic risk for insurers for the coming years.
Supervisory Statement on the impact of the ultra-low/negative interest rate environment. Publication. Date: 20 Feb 2020. This statement is addressed to the 19 Feb 2020 ➢ NSAs should broaden the analysis of the low interest rate environment and also consider the potential build-up of systemic risk. B) Medium to 23 Mar 2016 The following three objectives to be targeted by supervisory authorities in the current low interest rate environment are addressed: Increasing EIOPA Financial Stability Report, as well as the EIOPA 2014 insurance stress test . Page 2. Financial Stability Review, November 2015. 135 low yields low/negative interest rate environment. NEWS. DATE: 20 Feb 2020. Today the European Insurance and Occupational Pensions Authority (EIOPA) has published 20 Feb 2020 EIOPA published a supervisory statement on the impact of the ultra-low or negative interest rate environment on the insurance sector in EU.
B Euro area insurers and the low interest rate environment 131 The current environment of protracted low interest rates poses major challenges to euro area insurance companies. This special feature discusses how a prolonged low-yield period might affect the profitability and the solvency of euro area insurers.
interest rate developments. In the current economic environment a lower CoC- factor is justified (see also the response of Insurance Europe). Q3.4. What is your
EIOPA is closely following the impact of a low/ultra-low interest rate environment on the insurance sector by, for example, intensifying monitoring and focusing on credible and robust stress-tests for seve ral years and providing recommendations, 12 and will continue to do so as long as th e macroeconomic enviro nment implies a risk