Monday, 08 August 2022 03:10

Digitalization and cyber risks rise to the highest level

Written by Evelyn Alas

EIOPA has published its Risk Scorecard based on Solvency II data for the first quarter of 2022. The results show that insurers' exposure to macro, market and digitalization risks are currently the insurance industry's top concern.

The other risk categories, such as insurance risk, as well as profitability and solvency risks, remain at average levels.

"Digitalization and cyber risks are at a high level. The importance of these risks for insurance, as assessed by supervisors, has increased due to the resurgence of cybersecurity issues and concerns about a hybrid geopolitical conflict", the report says.

This analysis reveals other concerns for the industry. Above all, in relation to risks related to the macroeconomy remain a key source of concern. Global GDP growth forecasts continue to decline through the second quarter of 2023, while inflation forecasts for major geographies remain elevated.

Market risks are currently at an elevated level. Volatility in the bond market increased and remained at elevated levels in the equity markets.

Credit risks and profitability are keeping pace

Credit risks remain relatively subdued, but CDS spreads continued to widen for unsecured and non-financial financial corporate bonds, and the median exposure to below investment grade assets (with a credit quality level above 3) increased slightly.

Profitability and solvency risks remain at a medium level. "Given the upward trend in interest rates since the beginning of the year, the solvency position of life companies increased, while that of groups decreased. Insurance risks remained at a medium level in the first quarter".

Climate remains at “medium” level

Market sentiment remains at an average level. Non-Life stocks slightly outperformed the stock market, while life stock returns were in line.

Finally, weather risks remain at a medium level. Insurers slightly increased the proportion of green bonds in their asset portfolio, while their share of green bond investments in the entire green bond universe decreased slightly.