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Law360, London (August 18, 2020, 4:39 PM BST) -- The capital buffers that insurers maintain to protect them in times of crisis could be battered as a result of a downturn in investment markets caused by COVID-19, Europe's insurance watchdog warned.
The European Insurance and Occupational Pensions Authority said on Monday that solvency capital ratios have already fallen during the pandemic and that it expects a "further drop" in the next quarter.
The decline has already been seen in the first half results of insurance giants including Swiss Re, whose solvency ratio dropped from 232% at the end of 2019 to 220% in July. Solvency ratios indicate how much cash insurers hold to withstand shocks and still pay out on claims. The regulatory minimum under the Solvency II Directive is 100%.
In the U.K., Lloyd's of London's ratio fell from 238% to 205% by mid-March.
"A further drop of solvency capital ratios for both life and non-life undertakings is expected for the next quarter, with the depreciation of assets in the context of COVID-19 as well as effects of already pre-existing low yield environment," the authority said in a statement.
But the regulator warned that insurers continue to face a high risk to their levels of solvency because of depreciation of their assets, although the risk from insurance claims was at a "medium level."
Life insurers have handled more claims but general insurers have had fewer, EIOPA said.
The Association of British Insurers said last week that its life insurance members had paid out £90 million ($117 million) to the families of people who had died from COVID-19.
The EIOPA report matches the assessment of Standard & Poor's, which said in July that insurers have faced a greater hit from investment losses than from claims. But the ratings agency warned that solvency ratios could be battered again by a second wave of the virus this year.
"The widespread reintroduction of lockdown measures could disrupt the financial markets further, deepen the recession and increase asset losses and insurance claims," Dennis Sugrue, S&P Global Ratings credit analyst, said at the time.
--Editing by Ed Harris.
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