The International Association of Insurance Supervisors (IAIS) has released its 2023 Global Insurance Market Report (GIMAR), highlighting key risks and trends shaping the global insurance sector.
The report draws on data collected from approximately 60 of the largest international insurance groups, covering over 90% of global written premiums.
According to the report, the aggregate systemic risk scores for the global insurance sector slightly declined compared to the previous year, remaining significantly below those of banks.
Despite the sound capital adequacy of the insurance sector, there was a slight decline at year-end 2022, primarily attributed to lower asset valuations in financial markets, the report noted.
The report focuses on two main themes: interest rate, liquidity, and credit risks in a challenging macroeconomic environment, and structural shifts in the life insurance sector.
It emphasises the increased allocation of capital to alternative assets and a growing reliance on cross-border asset-intensive reinsurance.
Climate-related risks continue to be a significant concern, with insurers having substantial exposure to climate-related assets.
This exposure, particularly to transition risk, poses challenges to insurers’ profitability and capital management. The report notes that the expected increase in claims related to natural catastrophe events may disrupt reinsurance markets.
Rising interest rates, a positive factor for insurers’ aggregate solvency positions, also bring potential unforeseen cash outflows, such as margin calls on derivatives or policy surrenders.
The evolving digital landscape introduces new dynamics, influencing policyholder behaviour through factors like social media.
The IAIS underscores the need for supervisors to intensify monitoring efforts, employing frequent offsite and onsite supervision, sensitivity analysis, and liquidity risk stress testing.
Growing credit risk, commercial real estate exposures, and the interconnectedness of the insurance sector with banks are also top concerns for supervisors.
The report sheds light on the sustained growth trajectory in the global reinsurance market. However, significant increases in insured losses caused by natural catastrophe events have pressured reinsurers’ profitability, notably in the Americas and Europe in 2022.
Looking ahead, potential risk factors for the insurance sector include sustained high levels of inflation, lapses, significant unrealised loss positions, and the possibility of reduced demand for insurance due to strains on household purchasing power. Geopolitical tensions also continue to negatively influence the industry’s outlook, the report noted.
