EIOPA has released the results of its EU-wide insurance stress test, which aims to examine the overall resilience of the insurance sector and to recognise its major vulnerabilities.
Leveraging the upcoming Solvency II regime, the undertakings estimated a baseline scenario, without internal models, and tested various severe macro-economic and insurance specific shocks, including a prolonged period of low yields and a sudden reverse in interest rates.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
The results of the baseline scenario showed that the sector is in general sufficiently capitalised in Solvency II terms, however; about 14% of the companies representing 3% of total assets, had an SCR ratio below 100%.
Under the most severe ‘double hit’ stress scenario, approximately 56% of the companies would have a sufficient level of capital, according to the report.
According to the insurance specific stresses, the major vulnerabilities were mass lapse, longevity and natural catastrophes.
EIOPA has recommended the National Supervisory Authorities (NSAs) to engage with companies to ensure that they have a clear understanding of their risk exposures and their vulnerability to given stress scenarios. Further they should have the capacity to take recovery actions if those vulnerabilities materialise.
EIOPA chairman Gabriel Bernardino said: "EIOPA’s stress test 2014 was a truly preventive supervisory tool.
"It gave EU supervisors an updated picture of the undertakings preparedness to comply with the upcoming Solvency II capital requirements and by applying a set of rigorous and severe stresses indicated to us the areas where undertakings are most vulnerable."
