The European Insurance and Occupational Pensions Authority (EIOPA), a financial regulator, has launched a stress test this year.

The 2021 insurance stress test will particularly assess the European insurance market’s resilience against a prolonged Covid-19 pandemic scenario.

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Overall, 44 insurers and reinsurers will be tested in the exercise which will involve evaluating the economic consequences of the pandemic in a ‘lower for longer’ interest rate environment.

The test scenario is designed in collaboration with the European Systemic Risk board (ESRB).

During the test, EIOPA will evaluate the impact on the capital and the liquidity position of the participants, and subsequently, will determine if the insurers are capable of withstanding severe shocks.

It will also provide the authorities with necessary recommendations and remedial actions.

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EIOPA vice-chair Peter Braumüller said: “This stress test is of particular importance because it assesses the resilience of the solvency and liquidity positions of the European insurers against an adverse scenario that could materialise in the aftermath of an economic crisis and in a period of high uncertainty.

“The scenario reflects severe but plausible shocks and will bring results that will shed light on the resilience of the European insurance sector. However, the exercise should not be considered a pass-or-fail exercise.”

The participant insurers were selected on the basis of size, EU wide market coverage and business lines among other factors. They cover 75% of the European Economic Area based on total assets in the Solvency II.

The results are expected to be published in December this year.