Investments not covering underwriting losses in insurance firms - bank
Non-life insurance firms here are suffering underwriting losses and are becoming dependent on investment income for overall profitability, the Central Bank has warned.
The Central Bank said investment income is now proving insufficient to cover underwriting losses.
In its latest macro financial review, the Central Bank said the solvency position of the sector weakened slightly last year, although all firms maintain a solvency ratio above the minimum requirement of 150pc.
Officials in Dame Street said firms in both the life and non-life sectors face challenges, with intense competition resulting in a number of concerns. However, it added the improving economy should support the sector by boosting premium growth.
The Central Bank has said it is liaising with firms to highlight the risks. However, in recent correspondence between the Central Bank and the Department of Finance, Financial Regulator Cyril Roux said Dame Street does not have the powers it seeks over insurance companies.
And he highlighted the fact that Sylvia Cronin, director for insurance, flagged up with the Central Bank Commission that her directorate does "not have the depth of supervisory knowledge and experience needed to fully discharge her mandate."
The Central Bank's macro financial review, which is published twice a year and flags up risks to the economy, warned that the competitive nature of the domestic market "is impacting firms' underwriting profitability".
"Firms in the non-life sector are experiencing underwriting losses and becoming dependent on investment income for overall profitability," the Central Bank said.
"Non-life insurance firms are increasingly reliant on investment returns to bolster overall profits.
"While domestic firms' investment returns increased over the course of 2014 due to the strong performance of financial markets, investment income is now proving insufficient to cover underwriting losses."
The Central Bank said that given the "challenging" conditions, the solvency position of the sector weakened slightly last year, although all firms maintain a solvency ratio above the minimum requirement of 150pc.
The Central Bank said three main risks remain in Ireland - high debt levels, unemployment and the level of non-performing loans, which, while falling, remains at one of the highest levels in Europe.
"A large portion of impaired mortgages are accounted for by loans in arrears by greater than 720 days, while a sizeable amount of impaired loans arises in the non-mortgage loan book as well, notable for commercial real estate and SME/corporate loans."
"The workout of non-performing loans will be a challenge to domestic banks over the medium term."
While the bank said it was too early to tell the impact of its new mortgage deposit rules, it said that while the majority of people recently surveyed believe house prices will continue to grow, the number has reduced.
The share expecting house price growth in the next quarter has dropped to 59pc from 68pc.
Externally, the Central Bank said the main risks facing Ireland include weak growth in the Eurozone, international geopolitical tensions, the possibility of a more aggressive than expected normalisation of monetary policy outside the euro area, and Greek uncertainty.