2013-03-22 – London
The IMF has just finished an investigation into the stability of the European financial sector
For the first time ever the IMF has prepared an overall assessment of the stability of the European Union’s financial sector.
The general synopsis is that much has been done in the aftermath of the financial crisis; however there remain clear weaknesses in the system. Some improvements are required in some key areas such as repairing bank balance sheets, making fast and sustained progress towards completing the Single Supervisory Mechanism (SSM), and further work to strengthen the European Union’s financial oversight framework.
Over a third of all global insurance premiums are written in the European insurance system and the technical note on EIOPA emphasises this importance. It also offers some further insight into the health of the sector.
Continued low interest rates and slow economic growth remain some of the biggest issues faced by insurance companies. In addition to adverse market conditions, low yields on sovereign debt make any long-term liabilities increasingly difficult to match. Moreover, impending regulations which have yet to be finalised add further uncertainty and strain to the future of the industry.
The implementation of Solvency II is now tentatively scheduled to commence in January 2014, although the commencement date seems to be continually postponed, creating an ever moving Solvency II mirage on the horizon. Until the regulations are fully ratified, and implementation has been formally confirmed, the risk management within the insurance sector will continue to be sub-optimal.
This is especially the case in some EU member states, where robust insurance supervision is not currently in place. Compromises over valuation issues that deviate from a market consistent approach may also threaten the credibility of Solvency II, even though these may in fact be precisely what is needed to ensure a counter-cyclical approach to capital allocation.
EIOPA’s role in the area of consumer protection has, however, been deemed ‘proactive’. EIOPA must continue its engagement in its oversight role and push through important changes in the sector as soon as possible.
