The European Insurance and Occupational Pensions Authority (EIOPA) notes volatility in financial markets and rising interest rates in its financial stability report published on Wednesday 22 June. The European economy is thus entering a phase of heightened uncertainty, a direct consequence of the invasion of Ukraine and the sanctions against Russia, which have amplified the rise in inflation.
Markets are expecting monetary tightening to curb inflation, EIOPA warns. The Covid-19 pandemic has disrupted supply chains and appears to have changed consumer consumption patterns. And the invasion of Ukraine is adding to pre-existing inflationary pressures.
Conversely, bond and stock prices have fallen and the risk of a further decline is high. “The impact of inflation on insurance and pension undertakings as well on policyholders and beneficiaries warrants our full attention”, warned Petra Hielkema, President of EIOPA, in a statement.
The European insurance industry had entered 2022 in good financial conditions and solid capital buffers. The direct impact of the invasion of Ukraine on European insurers and IORPs is very limited, but the potential effects of a second wave may be more significant.
In addition, climate risk remains one of the focal points, with environmental, social and governance factors increasingly influencing the investment decisions of insurers and pension funds, as well as their underwriting.
The supervisory authorities also expect the risks associated with the digitalisation of the economy to become more apparent in the course of 2022. But this risk also represents a challenge, which stimulates the demand for cyber insurance.
To read the EIOPA report: https://aeur.eu/f/2a8 (Original version in French by Anne Damiani)