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About EIOPA Financial Stability Reports
Under Article 8 of Regulation 1094/2010, EIOPA is, inter alia, mandated to monitor and assess market developments as well as to undertake economic analyses of markets. To fulfill its mandate under this regulation EIOPA performs market intelligence functions regarding its supervisory universe, develops a market surveillance framework to monitor, and reports on market trends and financial stability related issues. The findings of EIOPA’s market development and economic analyses are published in the Financial Stability Report on a semi-annual basis.
(Re) insurance undertakings and occupational pension funds are important investors in the financial market and provide risk sharing services to private households and corporates. In the financial markets, they act as investors, mostly with a long-term focus. Their invested assets aim to cover liabilities towards policyholders or members of pension fund schemes to which long-term savings products are offered, e.g. in the form of life assurance or pension fund schemes. Aside from offering savings products, (re)insurance undertakings provide risk sharing facilities, covering biometric risks as well as risks of damage, costs, and liability.
Financial stability, in the field of insurance and pension funds, can be seen as the absence of major disruptions in the financial markets, which could negatively impact insurance undertakings or pension funds. Such disruptions could, for example, result in fire sales or malfunctioning markets for hedging instruments. In addition, market participants could be less resilient to external shocks, and this could also affect the proper supply of insurance products or long-term savings products at adequate, risk-sensitive prices.
However, the insurance and pension fund sectors can also influence the financial stability of markets in general. Procyclical pricing or reserving patterns, herding behavior and potential contagion risk stemming from interlinkages with other financial sectors, are examples that could potentially make the financial system, as a whole, less capable of absorbing (financial) shocks. Finally, (re)insurance undertakings might engage in non-traditional/non-insurance business such as the provision of financial guarantees or alternative risk transfer, which also needs to be duly reflected in any financial stability analysis.
The Financial Stability Report draws on both quantitative and qualitative information from EIOPA’s member authorities. Supervisory risk assessments as well as market data are further core building blocks of the analysis.
First half-year report 2014
EIOPA has updated its report on financial stability in relation to the insurance, reinsurance and occupational pension fund sectors in the EU/EEA. The current report covers developments in financial markets, the macroeconomic environment, and the insurance, reinsurance and occupational pension fund sectors as of 23 April 2014 unless otherwise indicated.