AlphaReal: European insurers see inflation as the biggest macro risk

AlphaReal: European insurers see inflation as the biggest macro risk

November 8, 2023

Inflation Insurance companies
Inflatie (05) rente

A survey of European life insurance companies that collectively oversee € 2.73 trillion in assets, commissioned by AlphaReal, the specialist manager of secure income real assets, reveals inflation is the biggest macro risk facing the sector.

The Eurozone’s headline inflation rate (HICP) recorded a high of 10.6% last October and remains above the European Central Bank’s 2% target. Likewise in the UK, the CPI was at 11.1% last October and is still significantly higher than the Bank of England’s 2% target.

Stubborn and persistently high inflation presents challenges for European life insurers, as does the risk of future inflation shocks. This is because Insurers have substantial inflation-linked liabilities.

AlphaReal’s survey revealed that 21% of European life insurers have more than 60% of liabilities linked to inflation. A further 73% of respondents have between 30% and 60% of liabilities linked to inflation. Six percent have between 10% and 30% linked to inflation.

Two-thirds of life insurers surveyed by AlphaReal link liabilities to domestic inflation, with the remining third pegging to Euro-wide inflation rates. When asked the term of their liabilities, almost three-quarters (72%) of life insurers have medium-dated liabilities (10-20 years), one-quarter say they have less than 10-year duration, while 3% have greater than 20-year duration.

Looking at macro-risks facing the industry, other than rising inflation, European life insurers identified politics (both domestic and geopolitics) as the second largest risk, while monetary tightening by central banks through increased interest rates was rated third. The threat of recession was the fourth biggest macro risk identified by European life insurers, while equity and credit market volatility was rated fifth.

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