Guaranteed interest products top Belgian insurance sector risks

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Brussels, 30 July 2013

The greatest risk currently facing the Belgian insurance industry comes from life insurance products which offer guaranteed returns, according to the latest Insurance Banana Skins survey which ranks insurance sector risks. The latest edition of the survey was conducted by the CSFI and PwC, with PwC Belgium’s Financial Services Leader, Jacques Tison acting as local coordinator for the Belgian market for the third time in a row. It polled insurance practitioners to find out where they saw the greatest risks over the next 2-3 years.

The number one risk according to Belgian insurers is related to guaranteed interest products, mainly the ‘Class 21’ insurance contracts offering high guaranteed returns, held by most insurers in their life insurance portfolios. As the legacy of these products cannot be profitably funded at today’s low yields, they pose significant risks to the insurance sector.

When considering the global results of the survey, risks related to guaranteed interest products are ranked sixth, indicating that this risk is of significantly greater concern to the Belgian insurers compared to other countries.

Gérard Vandenbosch, Director Actuarial Services at PwC, comments: "For historical reasons, the Belgian life insurance market is more exposed to interest rate risk than other markets. Due to competitive pressure, until the late 1990s Belgian insurers offered life insurance products with the maximum allowed guaranteed interest rate of 4,75%. Around 2000, the regulator reduced this maximum allowed guaranteed rate to 3.75% and insurers also started to reduce their interest risk exposure by offering contracts with guaranteed rates for a limited period, often of 8 years. Nevertheless, many insurers still hold a significant portfolio of policies with such high guaranteed interest rates, commitments which for some contracts even still need to be fulfilled for newly added premiums. Obviously, in these years of historically low interest rates, these commitments are proving to be a heavy burden on the market."

The top three risk ranking is completed with investment performance (in second place) and the macroeconomic environment (ranked third), which are very closely related to the guaranteed rate products. Several consecutive years of low interest rates are putting pressure on an industry which relies on investment earnings to cover the decline in insurance business returns. Respondents feel the outlook over the short and medium term is grim in terms of economic conditions, and acknowledge that a persistent negative economic climate can have a severe impact on the profitability of the sector.

Another highly ranked risk, in fourth place, comes from heavy regulatory requirements attributable to the wave of new regulations being introduced at international and local levels.

Bert Reynders, Director Risk & Compliance Services at PwC, explains: "There are two key factors which result in the continued concern of insurers about upcoming regulation. Firstly, insurers are exposed to a combination of multiple significant regulatory changes at the same time. Within the coming years they’ll be confronted by the implementation of Solvency 2 measures, the introduction of more stringent market practices regulation, and adjusted IFRS accounting standards, among others. Secondly, there is continued uncertainty about the impact and the timing of these changes, therefore important decisions on these new requirements need to be taken by regulators as soon as possible."

The survey results indicate that the new rules could swamp the industry with costs and compliance problems. It could also distract management from the urgent task of running profitable businesses at a time when the industry is under stress.

Top 10 risks Belgian insurers 2013

  1. Guaranteed products
  2. Investment performance
  3. Macroeconomic environment 
  4. Regulation 
  5. Capital availability
  6. Long tail liabilities 
  7. Natural catastrophes 
  8. Quality of risk management 
  9. Distribution channels 
  10. Human resources

About Insurance Banana Skins

The Insurance Banana Skins survey was conducted in March and April 2013 and is based on 662 responses from 54 countries. The survey is the most recent in the CSFI’s long-running Banana Skins series on financial risk. Previous Insurance Banana Skins surveys were in 2007, 2009 and 2011. The current and previous editions can be found at and/or The CSFI (Centre for the Study of Financial Innovation) is a non-profit think-tank, founded in 1993, which looks at challenges and opportunities for the financial sector.