The exercise shows that insurers in the European Economic Area are overall well-capitalized and able to meet the Solvency II requirements even under the stress test’s severe but plausible shocks that stem from widespread supply-chain disruptions, low growth and renewed inflationary pressures.
The European Insurance and Occupational Pensions Authority (EIOPA) published today the results of its 2024 Insurance Stress Test in which it assessed European insurers’ ability to cope with the economic and financial fallout from a resurgence of geopolitical tensions.
Geopolitical shock scenario
The stress test subjected European insurers to an adverse scenario marked by an intensification of geopolitical tensions with a broad range of knock-on effects. The scenario consists of various events whose joint materialisation is calculated to be plausible but more severe than the existing capital requirements calibration. On top of subdued growth and higher inflation, these ripple effects include tighter financing conditions, a steeper inversion of the yield curve, widening credit spreads and a heterogenous increase of government bond yields amid concerns over debt sustainability. These macro-level market shocks are complemented by insurance-specific elements, such as mass lapse, claims inflation and reduced premium income.
Although the stress test is not a pass or fail exercise, its narrative offers relevant learnings for supervisors and financial entities alike on the sensitivity of European insurers to the high uncertainties surrounding the geopolitical landscape and the economic outlook.
Scope and approach
EIOPA turned the above narrative into a set of shocks and assessed the insurance industry’s resilience to them from a capital as well as a liquidity perspective. 48 undertakings from 20 member states participated in the stress test, representing approximately 75% of the EEA market in terms of total assets....
more at EIOPA
© EIOPA
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article