Beleaguered general insurers face stress tests next year

Ireland's beleaguered general insurers face a round of stress tests next year from the Central Bank, as the loss-making industry grapples with soaring motor injury claims costs.

While all insurers must file annual risk and solvency assessments that include stress scenarios, the regulator plans to enhance its “forward-looking supervision and systemic risk monitoring by introducing Irish specific stress tests for risks facing the general insurance sector,” a spokeswoman for the bank said.

She was expanding on remarks by the organisation's insurance director, Sylvia Cronin, to the Oireachtas Finance Committee on Thursday.

Irish motor insurance claims have surged by 42 per since 2005 to €1.3 billion, even as premiums fell by 25 per cent to €1.25 billion, Central Bank deputy governor Cyril Roux told the same committee meeting.

The figures underscore the challenges faced by the Government and insurers as coverage costs soar in an industry that has suffered €684 million of underwriting losses between 2013 and 2015, according to the bank, against the backdrop of rising court awards and increased car usage in a recovering economy.

Even though Central Statistics Office data show motor premiums have soared by almost 70 per cent in the three years through August, FBD, Ireland’s only publicly quoted insurer, has predicted that the industry will still be writing business at a loss this year.

“Low premiums and high payouts cannot last and ultimately result in failure - and further consumer detriment,” Mr Roux said.

While insurers were able to rely on investment returns for several years to bolster their earnings even as claims costs rose, investment returns have been hit recently in a low interest rates environment, driven by central bank policy internationally.

He said that companies may fail when poorly selecting risks or underpricing risk.

Setanta

“This, together with limited shareholder support, is likely to have been the main driver of the failure of Setanta in Malta [in 2014] and Enterprise Insurance in Gibraltar [in July], although only their local prudential supervisors are in a position to tell,” he said.

“Average premium rates over the cycle are driven by the overall claims charge, if not exclusively,” he said.

“Policy actions that would result in a reduced level and uncertainty of claims would contribute to reducing the rise of average premium levels or might even reverse the trend.”

A Government-led working group is currently reviewing the factors behind rising motor coverage in Ireland in recent years, with a view to identifying priority actions by the end of this month.

Meanwhile, Mr Roux said that the insurance division is operating “below the number of people we need to do our job” and that typically more than half of supervisory staff are in position for less than two years as they can earn as much as 50 per cent more in the private sector.

The spokeswoman said the division currently has 131 staff, compared with approval for 147 people.