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Risks are not off the table at European insurers BY JORGE GROEN
COVID-19 has been a serious stress test for financial markets, but also for insurers’ balance sheets and capital ratios. The risks are not yet off the table, warns Alexander Duckwitz, Insurance Advisory EMEA and ‘risklab’ at Allianz Global Investors. The year 2019 turned out better than
decline in value in the first quarter of
of pension fund and insurer
expected for insurers’ investment
2020. This also ended the positive
supervisors, EIOPA, has also taken
portfolios. Although interest rates fell,
value development that had started in
measures to mitigate the effects of
other segments of financial markets
late 2018.
the crisis. For example, the timetable for the revision of Solvency II 2020
did well. But in March 2020, with the Covid-19 crisis, a perfect storm
‘Due to the flattening of the yield
has been rescheduled, probably
occurred for insurers’ investments.
curve, the value of future obligations
aiming for the end of this year. IFRS17
Between late 2018 and the first
increased by 15% to 20% on average
has been postponed, too.’
quarter of 2020, Allianz Global
compared to late 2018 – especially in
Investors considered the model
life insurers’ investment portfolios,’
Amidst a falling interest rate late last
portfolios of non-life and life insurers,
says Alexander Duckwitz, who is
year and the strong volatility in March
which largely consist of sovereign
responsible for Insurance Advisory
due to the coronavirus outbreak,
debt and credits. Due to the strong
EMEA and ‘risklab’, the department for
Allianz Global Investors’ optimized
volatility in financial markets in
ALM studies and portfolio studies at
portfolios for non-life and life insurers
March, they showed a significant
Allianz Global Investors.
maintained a much steadier pace than
1
Photo: Archive Allianz Global Investors
the market. Sound risk management According to Solvency II rules, a lot of
and dynamic real-time matching of
capital should be held for life
obligations weakened extreme market
insurances with long-term
movements.
guarantees. Combined with the sharp downturn in financial markets, this
Risks are not off the table
has significantly impacted Own Fund
For insurers, the landscape looks
levels. Duckwitz expects that life
substantially different than late last
insurers with a significant duration
year due to Covid-19. Budget deficits
gap between assets and liabilities will
and central bank balance sheets will
be hit hardest.
rise, which means that limiting the interest rate risk seems to be the
Absorbing short-term market stress Duckwitz points to the robustness of the Solvency II rules, which have led many European insurers to be rather resilient. ‘A positive side effect of Solvency II was that short-term market stress could be absorbed, enabling insurers to keep focusing on the long term. The framework prevented them from having to reduce risks all at once and make unwise decisions at a fairly inconvenient time. ALEXANDER DUCKWITZ
78
FINANCIAL INVESTIGATOR
NUMMER 5 / 2020
The European umbrella organization
A positive side effect of Solvency II was that short-term market stress could be absorbed, enabling insurers to keep focusing on the long term.