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FMA Report: The 2024 insurance year: change in interest rates, climate change and digital transformation

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The Austrian Financial Market Authority’s analyses have shown the Austrian insurance sector’s resilience under different stress scenarios

The Austrian insurance market continued to be marked by the changing interest rate environment, the consequences of climate change and the increasing use of new digital technologies in 2024. There were the findings of the 2024 edition of the Austrian Financial Market Authority’s Report on the State of the Austrian Insurance Industry, which was published today.

The liquidity risk of insurance undertakings has enjoyed greater supervisory focus, due to central bank interest rate increases to mitigate inflation since 2022 and large claims for catastrophes – of around EUR 700 million alone for the storm in Austria and neighbouring countries in September. During the low interest environment, more illiquid investments were attractive for generating guaranteed returns in the life insurance sector. Real estate in particular plays a very large role in comparison with Europe as a whole for Austrian insurers, and makes up approx. 10% of total assets.

The FMA took part in the stress test for European insurance groups coordinated by the European Insurance and Occupational Pensions Authority (EIOPA) for analysing macroprudential risks and vulnerabilities. The scenario tested a sudden increase in interest rates and inflation with a simultaneous mass wave of policy cancellations. Vienna Insurance Group from Austria participated in the stress test. In addition, the FMA conducted a simplified stress test based on the European scenario for the Austrian insurance market. The results confirm Austrian insurance companies’ sound capital base.

A second stress test was conducts on another issue in the year that is coming to an end: For the first time, the European Supervisory Authorities (ESAs) analysed the consequences for the financial sector of the transformation of the economy to low-carbon production (‘Fitfor55’), which the European Union strives for. The FMA has been conducting a climate stress test regularly since 2019, which in 2024 for the first time also used FitFor55 as the underlying scenario, to be able to analyse the vulnerability of insurance portfolios against the measures proposed in this package. Events have shown that the Austrian insurance sector is able to absorb the effects of the implementation of the EU’s package of measures to realise the European Green Deal, and that it doesn’t present any threat to financial stability. If the implementation of the FitFor55 package however causes second-round effects, losses of 16% of asset-side holdings may arise – a similar amount to the European level. This emphasises the importance of integrating climate and transition risks into risk management.

Insurance companies’ resilience to cyber risks was another topic for the FMA, also in preparation for the EU’s DORA regime on ICT risk management that applies from 2025.

The full report can be downloaded from the FMA website at https://www.fma.gv.at/versicherungen/offenlegung/lage-der-oesterr-versicherungswirtschaft/ (in German only).

Journalists may address further enquiries to:

Boris Gröndahl (FMA Media Spokesperson)

Telephone: +43 (1) 249 59-6010

Mobile: +43 676 8824 9995

E-Mail: [email protected]