The (re)insurance sector has remained well-functioning and stable, evidenced by high capital levels, positive profitability and a persistent inflow of additional capital, according to the International Association of Insurance Supervisors’ (IAIS) 2016 Global Insurance Market Report (GIMAR).
This is despite operating in an increasingly difficult macroeconomic and financial environment characterised by weak global demand, low inflation rates, very low interest rates, and bursts of financial market volatility, the report said.
However, this environment is challenging long-established business models of various insurers, especially those of life insurers.
Key findings in the report include:
- Non-life (re)insurance continues to be subject to soft market conditions. Competition is especially strong in the reinsurance market;
- The prolonged low interest rate environment remains a source of vulnerability for life insurers, especially in Europe; and
- Life insurers are under pressure to improve their expense management and to reduce costs.
To safeguard the stability of the financial system and economies in the future, the report concluded that, from a macroprudential supervisory perspective, it is essential to ensure that insurers are responding adequately to the accumulation of risks and structural changes that are a source of potential vulnerability.
Another key challenge is to strengthen the ability of insurers to respond to risks in areas where they are increasing their risk-taking.
Given the importance of large insurers to the financial system and the economies in which they operate, it is important that they maintain a solid financial base and strengthen business management frameworks to manage the accumulation of risks, as well as being prepared to respond in an orderly manner in times of stress.
The 2016 GIMAR examines several special topics, including the relationship between climate change, insurance and regulation; the first experience with Solvency II; and the results of EIOPA’s 2016 insurance stress test. It also contains the IAIS Global Reinsurance Market Survey results.