Spotlight: Insurance sector proves its resilience in real life stress test

The global health crisis driven by the spread of the Covid-19 has had deep ramifications for companies globally. The insurance sector, both life and non-life, has also been impacted through a number of different effects. The key headwinds for the European insurance sector have been both from underwriting and market volatility.

Underwriting headwinds

  • For non-life insurers, this has been in contingency lines such as event cancellation (for example the postponement of the
    2020 Tokyo Olympics), as well as business interruption and other lines such as travel and weddings driven by lockdowns. However, retail lines such as motor insurance and home insurers have benefited strongly from lockdowns with lower mobility and lower burglaries as people stayed home. For retail- focused non-line insurers, this had a very positive impact on profitability.
  • For life insurers, this has mainly been driven by mortality books of business, due to excess mortality in most affected countries such as the US.

Market volatility headwinds

  • Elevated market volatility, especially equity markets dropping by close to 40% in Europe and credit spreads widening by close to
    160 bps on investment grade credit led to significant unrealised losses initially, which abated as markets recovered over the course of 2020.
  • Interest rates fell significantly as a result of aggressive monetary stimulus, leading to the 10-year government bond yield reaching a record -0.86% and profitability headwinds.

While Covid-19 had a material impact on the insurance sector, this needs to be put in the context of the resilience of European insurers. Firstly, the starting solvency position of the sector was solid around or above 200% (ie twice the minimum requirements) at the end of 2019, providing a large buffer to absorb losses.

  • Please read this important legal information before proceeding.

    Information contained herein are solely for the use of the person who has accessed this information and may not be reproduced or distributed, even partially, to any other person or entity.

    The material contained herein is confidential and intended solely for the use of the persons or entities with nationality of or respectively with their residence, domicile, registered office or effective administration in a State or Country in which distribution, publication, making available or use of the information is not contrary to applicable laws or any other regulation.

    The material contained herein is aimed at sophisticated, professional, eligible, institutional and/or qualified investors/intermediaries who have the knowledge and financial sophistication to understand and bear the risks associated with the investments described.

    The information is solely product-related and does not take into account any personal circumstances and does not qualify as general or personal investment recommendation or advice. In particular, the information is given by way of information only and does not constitute a specific legal offer for the purchase or sale of financial instruments. Moreover, nothing contained herein is constitutive of any tax advice.

    Every effort has been made to ensure the accuracy of the financial information herein but the information contained herein has not been independently reviewed or verified. Therefore, Atlanticomnium SA gives no assurance, express or implied, as to whether such information is accurate, true or complete and no responsibility is accepted by Atlanticomnium SA for any errors or omissions. Third-party content is the property of its respective provider or its licensor and is protected by applicable copyright law.

    Past performance is not indicative of future performance. The price of shares/units and the income from the funds/trusts can go down as well as up and may be affected by changes in rates of exchange or financial markets fluctuation, out of the scope of Atlanticomnium SA.

    To the fullest extent permitted by law, in no event shall Atlanticomnium SA or our affiliates, or any of our directors, employees, contractors, service providers or agents have any liability whatsoever to any person for any direct or indirect loss, liability, cost, claim, expense or damage of any kind, whether in contract or in tort, including negligence, or otherwise, arising out of or related to the use of the information provided.