The current quantitative easing (QE) policy in the euro area may create favourable conditions for insurers and pension funds in the long run, provided that economic growth improves, the European Insurance and Occupational Pensions Authority (Eiopa) has said in its Financial Stability Report for May 2015.
But in the short-term, QE has further lowered the risk-free rate and, thus, put an additional pressure on certain insurers' and pension funds' business models.
"Furthermore," added Eiopa, "the QE programme might significantly reduce market volume for some asset classes. In such circumstances, the herding behaviour of investors related, for example, to a deteriorating geopolitical situation, could trigger a risk reversal or 'double-hit' scenario."
Eiopa said the risks identified in the previous report of December 2014 remain broadly unchanged: a weak macroeconomic environment, protracted low interest rates and increased credit risks.
"Today's macroeconomic reality is creating severe challenges for certain insurance and pension-fund business models," noted Gabriel Bernardino, chairman of Eiopa. "In this environment it is fundamental that supervisors monitor the situation very closely and challenge the industry on the sustainability of their business models.
He added, "Action is needed from the industry to deal with the vulnerabilities of the 'in-force' business and to restructure their mix of products. The transitional measures included in Solvency II should be used to ensure a smooth transition to the new regime, avoiding disruptions in the market, while ensuring that firms will take the necessary steps to restructure their businesses."
People:Gabriel Bernardino
