The results of CEIOPS’ stress test exercise indicate that large and important European insurance groups would remain resilient even in severe scenarios. In all scenarios, the aggregated level of available capital would exceed regulatory requirements.
CEIOPS has presented to EU Economic and Financial Committee (EFC) members the findings of its EU-wide Stress Test for the insurance sector.
The aim of the exercise was to evaluate the overall resilience of the insurance sector under several stresses to the economic and financial market environment. The exercise included 28 large and important European insurance groups, covering above 60 per cent of premiums of the European insurance market.
Participating insurance groups were asked to calculate the impact of stresses on their solvency ratios under three scenarios: an adverse scenario and two additional severe scenarios (a deep recession and an inflation scenario).
The results of the exercise indicate that large, important European insurance groups would remain resilient even in severe scenarios. In all scenarios, the aggregated level of available capital exceeds the regulatory requirements.
In the adverse scenario, which mirrored the development of capital markets between end of September 2008 and end of September 2009, the exercise resulted only in a marginal impact of a loss of 10 billion euro, representing a 3 per cent reduction of the available capital of the participating groups.
In the two severe scenarios, the impact on available capital was considerably higher, up to a 25 per cent reduction of the available capital of the participating groups.
CEIOPS Chair Gabriel Bernardino highlighted the stress test exercise findings. These showed that “all participating insurance groups held assets sufficient to cover policyholder liabilities.“
It should be noted that financial markets have improved since the reference date of end June 2009. As a result, most participating groups should have been able to build up additional capital buffers, thus improving their solvency ratios. It should also be taken into account that overall the European insurance industry remained resilient during the financial crisis. Public sector support was only necessary in a very limited number of cases prior to June 2009. These interventions have been included in the exercise.
Furthermore, the CEIOPS Chair emphasised that “Moving forward to the new Solvency II the regulatory solvency requirements will be more aligned with actual risks taken. Further, the Solvency II regime will also require a consistent measurement of assets and liabilities thus making future European-wide stress tests more comparable.“
© CEIOPS
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