The European Insurance and Occupational Pensions Authority (EIOPA) launched today the second Europe-wide stress test for the insurance sector. The stress test is conducted in cooperation with the respective national supervisory authorities and will be carried out between now and the end of May, based on 2010 financial results. EIOPA expects to publish the aggregated results of this exercise in July 2011. The test is targeted towards the European insurance sector and will include a minimum of 50% of insurance companies per country measured by gross premium income. The Swiss Financial Market Authority (Finma) has decided to join the stress test in addition to member states of the European Union and European Economic Area (EEA).
The stress test is one of a range of supervisory tools for assessing the strength of individual institutions and evaluating the stability of the insurance sector. Furthermore, it helps supervisors to understand the capital positions of insurers and insurance groups in adverse situations.
This stress test intends to replicate macroeconomic scenarios and aims to identify and quantify the impact of three different stress scenarios: baseline, adverse and inflation scenario. The baseline scenario is defined as severe stress whereas the adverse scenario includes an even more severe market deterioration in the main macroeconomic variables. The inflation scenario assumes an increase in inflation, which forces central banks to rapidly increase interest rates.
To run this exercise, EIOPA considered the macroeconomic assumptions that were applied to the banking stress test, in particular the assumptions underlying the macroeconomic adverse scenario provided by the European Central Bank. EIOPA further enhanced the definitions of those stress scenarios to address the actual market environment of the insurance industry.
Stress tests are a regular supervisory tool and the execution of periodic exercises is set down in EIOPA’s regulation. The regulation defines EIOPA’s composition, powers, tasks and decision making process.
Source : EIOPA Press Release
