EIOPA warns about shifting risks at insurers

The low interest rate environment is leading to a “search-for-yield behaviour” of insurers and an increasing transfer of risks to policyholders, the chairman of the European Insurance and Occupational Pensions Authority (EIOPA), Gabriel Bernardino, warns in a Nov. 22 speech in Frankfurt.

A recent investment survey points to a search-for-yield behaviour of insurers. The increased exposure to more illiquid investments and to non-traditional asset classes, such as infrastructure, improves asset diversification but also demands new risk management capabilities from insurers and closer supervisory scrutiny, Bernardino explains.

Another consequence of the low interest rate environment is the acceleration of the pace of change in business models, especially in life insurance, with the move towards contracts with lower and more flexible guarantees and, in some countries, the significant increase of pure unit-linked products, Bernardino adds.

Bernardino notes that the move increases the transfer of risks to policyholders and that this evolution deserves further reflection from a regulatory perspective.

“We should […] thoroughly analyse the new evidence available on the risks and characteristics of the long-term life insurance products, especially concerning the illiquidity characteristics of the liabilities and the corresponding ability of insurers to mitigate short-term volatility by holding assets throughout the duration of the commitments, even in times of market stress,” he says.

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