The performance of the Austrian insurance market in 2023 has been strongly marked by the massive impact of the abrupt turnaround in interest rates: The rapid and sharp increase in interest rates has in particular triggered losses in the important asset class of long-term fixed-interest rate bonds. This has caused a squeeze on the undisclosed reserves of investments (excluding unit-linked and index-linked life insurance), which had fallen from € 24.1 bn at the start of 2022 to € 12.04 bn at the end of H1 2023, with the reserve ratio having roughly halved to 12.8%. In contrast, Austrian insurance undertakings have a good capital base compared internationally. The average solvency ratio improved from 226% in 2020 to 271% in 2022, with the median solvency ratio in mid-2023 standing at 257%. Expressed in broad terms, the Austrian insurance industry holds over two and a half times as much own funds as are required in regulatory terms. The Austrian insurance industry is therefore on a stable and crisis-resistent footing, which is particularly significant in light of the fragile geopolitical situation and the bleak prospects for the economic situation. These findings have emerged from the "2023 Report on the state of Austrian Insurance Sector", which was published today by the Austrian Financial Market Authority (FMA).
Noticeable trends in the investment strategy
As of 30 June 2023, the Austrian insurance industry managed assets of € 123,4 bn. 23.7% were invested in participations, 18.0% in corporate debt, 16.7% in investment funds, 15.1% in government debt, 8.5% in real estate, 4.3% in mortgages and loans, 1.8% in cash and deposits, 1.2% in shares and 0.8% in structured debt instruments.
The reduction in the level in debt securities by approximately ten percentage points can be traced almost exclusively to the losses in assets in the existing portfolio sustained due to the increase in interest rates. By European standards, Austrian insurance companies traditionally hold less government debt, but more in participations, real estate and investment funds. The interdependencies with the banking sector in terms of investments continue to fall, with a share of 15% of all assets, which is only marginally above the European average (14%). “Home Bias”, the proportion of Austrian government and corporate debt to the respective total volume, stands at 20% and is one of the lowest in Europe.
Due to their specific business model liquidity risk plays a subordinate role at insurance undertakings compared to banks. In terms of investment liquidity, measured in terms of the Liquid-Asset-Ratio, Austrian insurers’ median of 46% is below the European average. With a share of 9.5 % in real estate, Austrian insurers have the highest level in the EU; in addition 2% is held in the form of investments in infrastructure.
Climate Risks
The consequences of climate change on the insurance industry are twofold. Firstly, there is strong increase in environmental catastrophes, with climate-related insurance claims also rising significantly. Secondly, insurers as institutional investors are also important players in the fight against climate change in the implementation of ESG strategies (Environment, Social, Governance). In addition, assets invested in climate-relevant sectors are increasingly becoming exposed to transitional risks, that arise from a change to a climate-neutral economic model.
The climate-relevant share of insurance undertakings’ assets makes up around one-fifth of their total portfolio (around 21%), but overwhelmingly result from real estate-related investments. A climate stress test conducted by the FMA of investment portfolios has shown that a strong increase in the CO2 price has a massive impact. The scenario indicates shows alarming losses: -11.8% for government debt, -11.5% for corporate debt and -14.1% for shares. Managed assets would sustain a loss of -8.6 % in total.
The full “FMA Report on the State of the Austrian Insurance Industry 2023” can be found on the FMA website in German through the following Link.
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43 / (0)1 / 24959-6006
+43 / (0)676 / 882 49 516