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The European Insurance and Occupational Pensions Authority (EIOPA) announced November 30 the results of its EU-wide Insurance Stress Test. The exercise aimed to test the overall resilience of the insurance sector and to identify its major vulnerabilities.
Undertakings estimated a baseline scenario using the upcoming Solvency II regime, without internal models, and on top of that tested a number of severe macro-economic and insurance specific shocks, including a prolonged period of low yields (“Japanese-like” scenario) and a sudden reverse in interest rates (“Inverse” scenario).
The results of the baseline scenario indicated that the sector is in general sufficiently capitalised in Solvency II terms. Nevertheless, 14% of the companies representing 3% of total assets, had an SCR ratio below 100%.
The stress test results showed that the insurance sector is more vulnerable to a “double hit” stress scenario that combines decreases in asset values with a lower risk free rate. However, 56% of the companies would have a sufficient level of capital under the most severe “double hit” stress scenario. The major vulnerabilities as per the insurance specific stresses were mass lapse, longevity and natural catastrophes.