Insurance companies' roles as investors have been increasingly affected by the decade's financial turmoil followed by the current crisis and recession, says the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS).

The supervisory body's half-year report shows that powerful negative and erratic developments on stock markets with a spreading and damaging effect have struck the investment income for insurance undertakings, especially as they are dependent upon the profits of the investment portfolio. The consequence of this has been a devastating fall in the return of equity figures in 2008.

Due to this, the financial performance of most insurance undertakings was weaker because of low investment yields and a plateau or decreased premium income. CEIOPS predicts that 2009 will also be vastly challenging following an extended period of low interest rates and deteriorating macroeconomic environment, which may not only reduce investment income but also demand for certain lines of insurance.

However, the report also stated that insurance takings come from a strong solvency position and there are positive signals like rising premiums in certain sections as a reaction to the crisis. Pension funds have been affected by the financial climate primarily with regard to their role as institutional investors; sudden drops in the equity markets and increasing credit spreads have placed investment portfolios under a crushing strain. Responses have been seen in policies, focusing on the flexibility within the current framework and differing security mechanisms available.

Meanwhile a European Commission spokesman, Johannes Laitenberger, has spoken out against pension "scare stories" as being based on "assumptions in relation to annuity rates in volatile and unusual market conditions...the crisis has shown the need to improve the prudential soundness of the insurance sector. This is in the interests of everyone." He added that annual pensions would continue to be defined by the annuity rate regardless of any "rules - existing or proposed".

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