EIOPA launches the EU-wide Insurance Stress Test 2016

26 May 2016 — Daniela GHETU
Aiming to respond to the current challenging macroeconomic environment by taking measures which can improve European insurers' resilience to the adverse scenarios, EIOPA - the European Insurance and Occupational Pensions Authority -, launched a new EU-wide stress test for the European insurance sector.

This regular exercise aims to assess insurers' vulnerabilities and should not be interpreted as a pass-or-fail test. It is designed to assess the resilience of the European insurance sector to severe adverse market developments based on a common analytical framework. Furthermore, this stress test will examine the potential increase of systemic risks in situations of stress.

The Stress Test 2016 focuses on two major market risks:
  • The prolonged low yield environment
  • The so-called "double-hit", i.e. a negative market shock to asset prices combined with a low risk free rate
"The current challenging macroeconomic environment has to be acknowledged in such a stress test exercise. Therefore, EIOPA decided to conduct severe stress scenarios. I am confident that the results of the simulation of such shocks will provide us a "high-resolution" picture of the European insurance sector and its most critical vulnerabilities.  We need to see the issues requiring particular supervisory attention and response to the potential built-up of systemic risks at the European level. Hence this exercise will not focus on who is not meeting the capital requirements after the shocks but on the financial stability implications of those scenarios," Gabriel BERNARDINO, Chairman of EIOPA, said.

The exercise focuses on long-term business performed by solo undertakings (no insurance groups). In order to include a higher number of small and medium size insurers, the participation target was increased from a 50% in 2014 to a 75% share of each national market in terms of gross life technical provisions.

To limit the burden on the insurance industry EIOPA makes use of this exercise to collect at the same time information on the Solvency II equity and Long Term Guarantees (LTG) measures. This collection of information is part of the mandatory review to be performed by EIOPA in accordance with Article 77f of the Solvency II Directive and thus not to be connected with the stress test exercise.

The launch date of the exercise (24 May 2016) is one week earlier than initially planned (31 May 2016) to allow the participating insurance companies for more time to complete the test. EIOPA will publish on a weekly basis Questions & Answers addressing possible queries of the participating companies. The deadline for submission of results to the national competent authorities (NCAs) will be 15 July 2016. The EU-wide results of the stress test will be disclosed in December 2016 in an anonymized and/or aggregated way.

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