Interest rate reversal has tangible effects on solvency

Swiss insurance companies are required to publish an annual Report on the Financial Situation and submit it to FINMA. For the sixth year in a row, KPMG has studied and evaluated these reports.

For the first time, solvency ratios are lower across the board.

The "Reports on the Financial Situation" published by Swiss insurers, which we have analyzed for the sixth time, confirmed the prediction we voiced the year before: the reversal in interest rates is having an impact – a significantly more profound impact than that of the Covid-19 pandemic.

For the first time, SST ratios overall were lower than in previous years, and excess cover and "hidden reserves" decreased. Some of the drivers of this development will continue in 2023 and could even intensify.

Nevertheless, the balance sheets of local insurers at the end of 2022 remain very solid. As a result, they should be well equipped to deal with further challenges on the financial markets or in the economy. Still, only the "big" insurers provide information on strategic considerations, ecosystems and ESG issues. The smaller ones are considerably less forthcoming when it comes to non-financial or sustainability topics.

For our analysis, we collected and evaluated the publications of 56 direct insurers.

Swiss insurers are still well capitalized. Although their excess capital levels have declined in 2022, they can still weather difficult years such as 2022 thanks to the solvencies they have built up in previous years.

Stefan Zumthor
Director, Financial Services, KPMG Switzerland

Key findings and lessons for the insurance industry

Solid financial statements despite interest rate reversal

In last year's edition, we already pointed out that insurers might be exposed to risks from rising interest rates, inflation fears and the fallout from the war in Ukraine. This prediction has proven to be accurate. In 2022, for example, market-consistent balance sheets did not expand further and excess capital decreased, unlike in previous years. For the near future, the trend of rising interest rates is here to stay. Even so, the balance sheets are still remarkably solid, allowing the industry to weather any further increases with no problems.

Solvency declines across the board for the first time

Whereas the industry's solvency still developed very positively in 2021, it has now fallen across the board for the first time, for both supplementary health and non-life insurers. Life insurers were able to maintain the previous year's level.

Public disclosure as a communication tool?

So far, only a few of the large insurance companies use public disclosure to provide comprehensive information on sustainability, strategic considerations ecosystems  in which they are or wish to be active. But sooner or later, environment-related financial risks will have to be disclosed. Only in some cases did companies disclose more than they did in the previous year. However, it is a small change at a low level.

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