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EU insurance watchdog says risks have risen for the industry

[LONDON] European insurance and reinsurance companies are facing increasing risks from a long period of low interest rates, a weak economic outlook and a deterioration in sovereign credit quality, the EU's insurance watchdog said on Tuesday.

At the same time, insurance premiums are only likely to rise next year in the non-life sector, the European Insurance and Occupational Pensions Authority (EIOPA) said in its twice-yearly financial stability report. "The overall profitability of insurance companies is still relatively favourable, but results remain pressurised," EIOPA said in a statement. "Overall, downside risks have increased." Insurers and reinsurers have been coming under pressure from rising competition in their sectors, keeping premium rates low.

Low interest rates, meanwhile, have capped their ability to boost returns through investing those premiums.

Stress tests unveiled by EIOPA earlier this month showed 14 per cent of Europe's 5,000 insurance companies would fall short of a key threshold if the EU's Solvency II rules, due to take effect in January 2016, had already been in force.

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The rules are aimed at improving the safety of products for consumers, and will require a complete overhaul of insurers'risk-management systems.