In view of high inflation, insurance contracts should be reviewed to avoid underinsurance, advises the FMA. Therefore, it is advisable to assess whether there is sufficient damage coverage, especially in the case of long-term contracts. The authority announced this in a press release on the occasion of its annual report on the situation in the Austrian insurance industry.
According to the management report, the premium income of Austrian insurance companies increased considerably in the first half of the year, ie by around seven percent. In general, however, the situation for insurers is not easy at the moment. On the one hand, the rise in interest rates makes your own debt more expensive. On the other hand, rising market interest rates mean that existing bonds in client assets are suffering huge price losses. Added to this are the losses in value that have also been seen on the stock market this year.
Assets under management plunged 9 percent.
According to the FMA, the assets under management of Austrian insurers fell by nine percent in the first half of 2022 due to the shock in the capital markets. The evolution of interest rates and the need to devalue bonds caused the financial result (capital investment: income and expenses) to collapse in the insurance industry. While it had risen a good 60 percent to €3.1bn in 2021, this year at the end of June it was only around €850m.
The strong increase in prices – in Austria they were around eleven percent in October compared to the previous year – is also cause for concern. This could lead to inflation-related cancellations. There is also a risk that inflation will reduce the liability reserves of insurance companies.
Equity and sustainability factors
At the same time, FMA executives point out that 70 percent of Austrian insurers have a solvency level of more than 200 percent; twice the regulatory capital required to offset the negative development. That’s a good capitalization in a European comparison, they say.
“Resilience against sustainability risks” is also positively highlighted. Around a fifth of overall insurer portfolios are “climate relevant”, meaning affected by disruptions caused by climate change. For example, a sharp and sudden increase in COtwoprices can cause falls in value of more than 10 percent, although in some asset classes, such as corporate bonds, it could be more than 14 percent. (eml)