The European Insurance and Occupational Pensions Authority (EIOPA) has made firm predictions that interest rates will stay lower for longer, which means insurers and occupational pension funds will need to focus more closely on risk management.
Reuters reports that the predictions were made in EIOPA’s
Financial Stability Report June 2016.
The executive summary of the report warns that despite the European Central Bank’s continued efforts to stimulate the economy, the drop in the price of oil leads the organisation to believe the current low-yield environment will continue for at least the short-to-medium term.
In this environment, the report warns, a double hit situation of falling asset values and sustaining value of liabilities cannot be ruled out.
In his forward to the report, EIOPA chairman Gabriel Bernardino warned insurers and occupational pension funds need to use robust risk management practices to deal with the ongoing challenges.
“In the insurance sector, not all institutions are equally affected by the low interest rate environment due to diverging market conditions, different product or business lines, maturity of liabilities and varying levels of guaranteed interest rates,” the forward reads. “For already several years, EIOPA has been devoting a lot of attention to these risks, monitoring the implications of such an environment and recommending concrete actions from supervisors and the industry.”
EIOPA also warned the insurance industry is still lagging when it comes to operating in a digital space. While innovative new businesses offer clever services online, the traditional insurance industry is yet to catch up.
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