EU Insurers Face Surge In Risk As COVID-19 Batters Markets

By Lucia Osborne-Crowley
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Law360, London (May 19, 2020, 2:12 PM BST) -- European insurers face an increasingly risky financial landscape as the effects of the global COVID-19 outbreak batter the industry, the sector's watchdog has said.

The European Insurance and Occupational Pensions Authority published its latest risk analysis on Monday, which found that all risk indicators have deteriorated as the coronavirus pandemic swept across Europe and caused markets to behave erratically and premiums to rise.

"The results show that the risk exposures of the European Union insurance sector increased as the outbreak of COVID-19 strongly affected the lives of all European citizens, with disruptions in all financial sectors and economic activities," the watchdog said.

A strong downturn in the first half of 2020 and a global recession for the year are likely to happen, the regulator warned.

That means that insurers and other major institutional investors face sell-offs across all asset classes. The watchdog said that insurers will probably experience a drop in business, falling income and a rise in claims.

"Solvency risks are expected to deteriorate, given the double-hit scenario negatively affecting insurers on both asset and liability side," the authority said.

The risk analysis also found that the bloc's insurance sector underperformed in comparison with the broader insurance industry.

Across Europe, governments have stepped in to help insurers weather the worst effects of the global pandemic, which has killed more than 300,000 people.

European competition authorities gave their blessing Monday to a €903 million ($990 million) reinsurance plan drawn up by Belgium to shore up trade credit insurance, which helps buyers pay for goods and services without cash upfront. 

The European Systemic Risk Board said Thursday it will enact new rules to protect the European economy from a macroprudential perspective — meaning the level of risk that builds up in the system as a result of the crisis. 

The board also announced a coordinated analysis with the European Supervisory Authorities — the European Banking Authority, the European Insurance And Occupational Pensions Authority and the European Securities and Markets Authority — to assess how a large-scale credit downgrade would affect the economy.

The European Central Bank told banks in March not to pay out dividends before October and to avoid launching share buyback programs to preserve capital to lend during the coronavirus pandemic. 

--Additional reporting by Christopher Crosby and Joanne Faulkner. Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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