The International Association of Insurance Supervisory Authorities IAIS named the key risks of the global insurance market
The International Association of Insurance Supervisors (IAIS) has released its Global Insurance Market Report 2023 (GIMAR), which highlights the key risks and trends shaping the global insurance sector.
The report is based on data collected from approximately 60 of the largest international insurance groups, covering more than 90% of global premiums.
Aggregate indicators of systemic risk for the global insurance sector decreased slightly compared to the previous year, remaining significantly lower than those of banks.
Despite robust capital adequacy in the insurance sector, there was a slight decline at the end of last year, mainly due to lower asset valuations in the financial markets, the report noted.
The report focuses on two main themes: interest rates, liquidity and credit risks in a challenging macroeconomic environment, and structural changes in the life insurance sector. The IAIS highlights the increasing allocation of capital to alternative assets and the growing reliance on cross-border reinsurance.
ESG climate-related risks continue to be a major concern, as insurers have significant exposure to climate-related assets. This risk creates challenges for insurers’ profitability and capital management.
The report sheds light on the sustainable growth trajectory of the global reinsurance market. However, the significant increase in insurance losses caused by natural disasters has affected the profitability of reinsurers, especially in the US and Europe. However, the increase in interest rates is a positive factor for the overall solvency position of insurers and reinsurers.
Growing credit risk, commercial real estate risk and the insurance sector’s relationship with banks are also major concerns for supervisors. The IAIS highlights the need for supervisors to strengthen monitoring efforts using frequent on-site inspections of market participants, sensitivity analysis and stress testing of insurers’ and reinsurers’ liquidity risk.
Looking ahead, potential risk factors for the insurance sector include persistently high levels of inflation, disruptions, significant unrealized losses and the possibility of reduced demand for insurance due to pressure on household purchasing power. Geopolitical tensions also continue to negatively impact the outlook for the insurance industry.