A Risk Dashboard for the Italian insurance sector

The IVASS has published „Quaderno n.26 – A Risk Dashboard for the Italian insurance sector“, which presents the general characteristics of the risk dashboard as a macroprudential supervision tool which collects indicators of risks for the financial sector, and explains why it could be useful for monitoring specific risks in the insurance sector.
The paper contains a brief description of two risk dashboards at the European level, one covering the entire financial sector and provided by the European Systemic Risk Board (ESRB) and the other for specific risks of European insurance companies by the European Insurance and Occupational Pensions Authority (EIOPA), based on Solvency II data and summarising the main risks and vulnerabilities in the European Union’s insurance sector. The IVASS has implemented its own risk dashboard to monitor the risks of Italian insurance companies. Thereby the IVASS has used the EIOPA Risk Dashboard as a reference for the development of its own dashboard and complemented it with indicators „developed and used internally by the IVASS“.
The publication widely covers the definition of macro risk categories, indicator description, score construction, and graphical tools that display the primary results, including historical data since the entry into force of the Solvency II regulatory framework in 2016.
In particular, the importance of monitoring Environmental, Social and Governance (ESG) risks in the insurance industry, especially with regards to climate-related risks are discussed. The paper notes that while the demand for insurance protection against natural perils related to climate change is positive from a macroeconomic perspective, it may endanger the financial stability of the sector. „Another source of financial risks from climate change comes from the introduction of sustainable investments (such as green bonds) in the companies’ assets and from the path of disinvestment of their non-sustainable components.“ The Ivass authors propose six indicators for assessing the insurance industry’s vulnerability to ESG risks, including market indicators based on ESG ratings of listed insurers, transition risks indicators based on Solvency II and market data, and physical indicators of the risks from climate change. These indicators are split into three subsets and are subject to further development as more granular data becomes available. The article emphasizes the importance of monitoring ESG risks and minimizing risks for insurers caused by assets downgrading.
The IVASS Risk Dashboard provides a comprehensive map of systemic risk in the insurance sector and useful indicators for both supervised insurance companies who can obtain a synthetic picture of the risk they face and the public interested in understanding the supervisory measures adopted by the IVASS.