Insurance sector proved resilient to the pandemic Outlook: CBCS concerned about growing vulnerabilities

The insurance sector of the monetary union delivered a stable performance in 2020, despite the severe Covid-19 shock. The solvency position in both the life and non-life insurance sector remained well above the regulatory minimum imposed by the Centrale Bank van Curaçao and Sint Maarten (CBCS). The overall profitability of the sector also improved in 2020, however, the CBCS remains vigilant about growing vulnerabilities. The Financial Stability Report, published by the CBCS, addresses the market structure, regulations and latest developments but also describes the main vulnerabilities associated with the local insurance sector 1

The solvency position of the insurance sector improved for the non-life sector while remaining stable for the life sector, emphasizing the soundness of the local insurance sector. The surplus excess, which is the portion of the capital in excess of the regulatory minimum, reached NAf.121.8 million for non-life and NAf.155.9 million2 for life in 2020. The sector accounts for approximately NAf.3.9 billion in assets which translates to 15% of the total financial sector. Despite its small size, the insurance sector is dominated by a few large institutions while the remaining market share is
highly fragmented.
The outlook for the life insurance sector is slightly negative due to further premium decline, as life insurance has become less affordable and less attractive for the policy holders. Moreover, policy cash-outs are expected to continue due to unfavorable economic conditions, while sensitivity to market risk has increased as local investment opportunities are scarce and international financial markets are highly volatile. In addition, a new actuarial interest rate framework will provide an anchor for insurers to amend their pricing mechanism to suit the current environment and
safeguard the long-term resilience of the sector. The short-term outlook for the non-life insurance sector is stable, however, the CBCS is concerned about the rising under- or even uninsured properties in the monetary union. Premium increase has also been observed in the non-life sector, as reinsurance companies adapt their prices on the basis of higher losses due to more frequent catastrophic events.

The insurance sector report is based on the most recent available data, which covers 2020, in accordance with current
legislation. An outlook for the short- and medium-term sector developments is incorporated to address this shortcoming. 2 Ennia is under the emergency measure and is therefore excluded from the solvency calculation.

The CBCS also recognizes that the 60/40 investment rule can pose a challenge for insurance companies. As local investment opportunities are scarce, insurance companies are steered towards local banks to deposit their excess cash. This drives interconnectedness between insurers and banks which has been identified as a medium of risk transmission. The CBCS will be reassessing the 60/40 rule.
The complete text of the Financial Stability Report is available on the CBCS-website at