EU watchdog warns of QE pressure on insurers

[FRANKFURT] The European Central Bank's money printing programme known as quantitative easing (QE) is putting additional pressure on the bloc's insurance companies and pension funds already beset by low interest rates, the EU's insurance watchdog said on Monday.

"Today's macroeconomic reality is creating severe challenges for certain insurance and pension fund business models," Gabriel Bernardino, Chairman of the European Insurance and Occupational Pensions Authority (EIOPA) said in the watchdog's financial stability report.

Quantitative easing had further lowered the 'risk free rate,' thus increasing the value of future liabilities while simultaneously cutting the value of assets on insurers' and pension funds' books, the watchdog said.

"In the insurance sector, returns and profitability of products remain under strong pressure with a potential negative impact on solvency," the report said.

Mr Bernardino urged financial supervisors to scrutinise closely the business models of companies under their purview to make sure they are sustainable.

Big companies like Allianz, Axa, Generali and Ergo are seen as having the financial strength to withstand pressure from low interest rates, but many smaller players are seen as at risk.

Low interest rates may drive further consolidation in the reinsurance sector, EIOPA said.

REUTERS