Europe’s Insurance Regulator Launches Latest Stress Test

The European Insurance and Occupational Pensions Authority (Eiopa) has launched the latest stress test to assess the resilience and vulnerabilities of the European Union’s (EU) insurers and reinsurers, a day after
the European Banking Authority (EBA) issued tougher guidelines
for the region’s banks.

Eiopa said that companies in the insurance sector will be required to demonstrate to the authorities that they are resilient to two adverse market scenarios in which financial assets such as sovereign debt, corporate bonds and equities; real-estate asset prices and interest rates are stressed.

The impact of shocks covering mortality, longevity, insufficient reserves, disasters and the effect of a prolonged low-interest-rate environment will also be tested.

The previous test was conducted in 2011, when more than 90% of insurers passed. However 10%, or 13 insurance groups, would have failed under the harshest scenario, leaving the sector as a whole €4.4bn (US$6.09bn) short of its minimum capital and risk management requirements under the Solvency II directive.

The latest assessment of the sector’s resilience will be based on the future capital and risk management requirements under Solvency II. These are not yet officially in place in the EU but will become effective from 1 January 2016.

The test will use insurers’ 2013 balance sheet data and will be carried out on insurers representing more than 50% of the European market.

National supervisors will collect data from the insurers in July. Eiopa and national supervisors will then validate the data obtained over the next two months and the test results will be published in November.

In addition to the latest test, Eiopa will publish technical specifications that insurers must apply during the two-year run-up to the launch of Solvency II when calculating assets, liabilities, solvency and minimum capital requirements.

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