International Association of Insurance Supervisors sees stable 2025

Supervisors are implementing stress testing and contingency planning to mitigate risks. 

The outlook for 2025 remains stable, although, International Association of Insurance Supervisors (IAIS) warned that macroeconomic and geopolitical uncertainties are not out of the equation.

The IAIS’ 2024 Global Insurance Market Report (GIMAR) findings revealed that life insurers are expected to maintain solvency through robust capital reserves and risk management despite challenges such as interest rate volatility and longevity risk. 

Non-life insurers are projected to sustain stable solvency ratios, supported by underwriting and investment income. Insurers are focusing on underwriting growth, asset repositioning, acquisitions, and AI-driven efficiency improvements.

The report shows findings from IAS’ 2024 Global Monitoring Exercise (GME), which assesses systemic risks and trends in the global insurance sector. 

The GME incorporates data from 59 major international insurance groups and supervisors covering over 90% of global written premiums. It analyzes data up to 2023, supplemented with recent financial market updates.

Global macro financial trends in 2023 showed steady economic growth but persistent inflation. Insurers’ total assets grew due to favourable market conditions, whilst liabilities increased with premium growth. 

Solvency and profitability remained stable, supported by strong underwriting and investment returns. Liquidity improved, driven by liquid investments and premium income, though key demands included claims, expenses, and funding needs.

Supervisors emphasized liquidity buffers, stress testing, and contingency planning to address these risks.

The GME identified two macroprudential priorities: managing risks in the current macroeconomic environment and addressing structural shifts in the life insurance sector. 

Insurers face challenges from fluctuating interest rates, credit risks, and potential commercial real estate downturns. 

Life insurers, particularly, must address surrender risks as higher interest rates may incentivize policy lapses. Supervisors are conducting stress tests and enhancing liquidity monitoring. 

Derivatives usage, primarily for risk hedging, also requires oversight due to potential liquidity risks from margin calls during market volatility.

Geopolitical risks, including market instability, cyber threats, and inflation-driven claims, continue to impact the insurance sector. Supervisors are implementing stress testing and requiring contingency planning to mitigate these risks. 

AI adoption is increasing operational efficiency but poses challenges related to underwriting risks and policy surrenders, prompting supervisors to develop governance frameworks and compliance guidelines.

Structural changes in the life insurance sector include increased investments in alternative assets, such as private credit and securitizations, and the growing use of cross-border asset-intensive reinsurance. 

Whilst these shifts provide diversification and higher yields, they raise concerns over valuation practices, liquidity risks, and concentrated exposures. 

Supervisors are implementing stress tests and reviewing these transactions to ensure stability.

The Insurer Pool's systemic risk score rose by 5.3% in 2023, driven by accounting changes under IFRS 9 and 17, which reclassified some assets to fair value. 

Despite this increase, systemic risk in the insurance sector remains significantly lower than in banking. The IAIS plans to refine risk assessment indicators in its 2025 review.

The global reinsurance market expanded in 2023, with gross reinsurance premiums reaching $900b. 

Declining retention ratios indicate rising reinsurance usage. 

Reinsurers maintained strong solvency and improved profitability, with the non-life combined ratio dropping to 95%, recovering from a spike in 2022. Most reinsurer investments are in corporate debt and equities, with limited exposure to real estate and loans.