Insurance giant Allianz has criticised regional regulators’ newly launched stress tests for insurance companies within the European Union.
The insurer told the Financial Times
that the latest stress tests are “half-cooked.” Its head of regulatory strategy, Tobias Buechler, said the scenarios that will be used in the exercise would not create significant results.
The stress tests announced by the European Insurance and Occupational Pen
sions Authority (Eiopa) in May will use two market scenarios: a prolonged period of low rates and a short-term negative shock.
According to the Financial Times
report, Allianz is worried about the first scenario of a prolonged low yield environment, wherein the tests assume that the so-called ultimate forward rate will fall from 4.2% to 2%.
“Economically you wouldn’t see such a severe drop in the ultimate forward rate,” the Financial Times
quoted Buecheler as saying.
“Solvency ratios could go down substantially, especially without considering transitional [measures used by some insurance companies]. They need to make it clear to the market that it is a freak stress situation,” Buecheler added.
Allianz is also concerned that the European Systemic Risk Board will use the stress test results to compel the insurance sector to have an additional layer of capital.
According to the insurer, an extra capital would not be useful and might not even have good returns.
“Historically in a crisis scenario the insurance industry has acted as a stabiliser. The business model is a volatility dampener. If you have a macro prudential buffer, there is a high chance that you could mess this up,” Buecheler was quoted as saying in the Financial Times
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