The International Association of Insurance Supervisors (IAIS) published its annual Global Insurance Market Report (GIMAR) for 2024, detailing the results of this year’s Global Monitoring Exercise (GME), the IAIS’ risk assessment framework to monitor key risks and trends and detect the potential build-up of systemic risk in the global insurance sector.
“The Global Insurance Market Report 2024 underscores the resilience and stability of the insurance sector, reflecting effective risk management and robust financial performance,” said Shigeru Ariizumi, IAIS Executive Committee chair, in a statement. “The report’s analysis highlights the sector’s ability to address challenges and navigate future uncertainties, thereby ensuring its continued resilience.”
Insurers experienced an increase in total assets and stable solvency and profitability levels at year-end 2023, supported by strong underwriting performance and investment returns. Liquidity positions improved slightly, with insurers focusing on maintaining adequate liquidity buffers. The systemic risk score of participating insurers in the GME rose by 5.3% at the end of 2023 compared to 2022, mainly due to a significant increase in level 3 assets.
Overall, insurers’ systemic risk scores remain significantly lower than those of banks, indicating that the insurance sector has a lower systemic risk footprint.
Two themes identified through the 2024 GME for deeper analysis were (1) key risks in the current macroeconomic environment and (2) structural shifts in the life insurance sector.
1. Key risks in the current macroeconomic environment include managing risks from fluctuating interest rates, credit risk and liquidity risk. The report puts a special focus on surrender risk, debt sustainability of fixed-income assets, risks related to commercial real estate (CRE) exposures, and the impact of derivatives and margin calls. In addition, the report outlines transmission channels from geopolitical risk and discusses the impact of artificial intelligence (AI) and digitalization on the sector. Supervisors are focusing on stress testing, liquidity management, and monitoring derivatives and geopolitical risks. While digitalization and AI offer significant benefits, they also pose liquidity and cyber risks, prompting increased supervisory engagement and the development of new guidelines.
2. Structural shifts in the life insurance sector involve increased investments in alternative assets and growing cross-border asset-intensive reinsurance. Although increased investment in alternative assets may offer benefits to the insurance sector, recent trends raise supervisory concerns about valuation, liquidity risks, hidden leverage and credit risks. Asset-intensive reinsurance transactions are expected to grow, driven by interest rates, credit spreads, pension reforms and demographic changes. Supervisory concerns for some regulators include concentration risks, increased complexity, regulatory differences and conflicts of interest.
The report also highlights the increasing frequency and severity of natural catastrophe (NatCat) events due to climate change, emphasizing the need for better tools and data to assess natural catastrophe risks and coverage costs.
Lastly, the outlook for the insurance sector remains stable, with life and non-life insurers expected to maintain or improve solvency ratios through effective risk management and robust underwriting and investment income. Uncertainty, however, remains in the current macroeconomic and geopolitical landscape.