30 June 2016

BaFin: IMF publishes stress test results for German life insurers

The International Monetary Fund examined the German financial sector from November 2015 to March 2016 as part of its Financial Sector Assessment Program, which also included stress tests of the German life insurance sector.

The results published by the IMF show that the majority of German life insurers will meet the solvency capital requirement (SCR) under Solvency II even in the event of a severe shock.

The insurance stress test covered a total of 75 German life insurers whose technical provisions accounted for a market share of roughly 93%. Calculation date was 31 December 2014. When applying the transitional measure for technical provisions, 62 undertakings showed an SCR coverage ratio of more than 100% even under stress test conditions. Without the application of transitional measures, the coverage ratio was less than 100% at 34 undertakings under the baseline scenario and 58 undertakings under stress scenario conditions. Again, without applying transitional measures, the gap between SCR coverage of 100% and the level of own funds was roughly €12 billion under the baseline scenario and €39 billion under the stress scenario.

The underlying stress scenario included, in particular, an adverse development of the capital markets in the form of falling interest rates and a decline in the market values of investments.

The results of the IMF's stress test of the insurance sector support the evaluations of the surveys on the solvency situation of German life insurers conducted by BaFin during the past two years: the transitional measures have the desired effect and facilitate a smooth transition to Solvency II, even under stress scenarios.

But, on the other hand, the results also show that German life insurers will have to make considerable efforts to strengthen their capital base during the 16-year transitional period. It can be expected that without transitional measures, the capital gap will significantly increase under a harsh stress scenario.

Press release

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