EIOPA (European Insurance and Occupational Pensions Authority) has today announced it will stress test 44 European Union insurers and reinsurers for their resilience to the economic consequences of COVID-19 and a “lower for longer” interest rate landscape. This is the latest stress test announced by the regulator which carries out such actions regularly across the insurance market to establish how well the European insurance industry can cope with severe but plausible financial and economic conditions.
The objective of the 2021 stress test exercise is to “assess the resilience of the participants to the adverse scenario(s) by a capital and liquidity perspective to provide supervisors with information on whether these insurers can withstand severe but plausible shocks.”
The test is not a pass/fail exercise but has a mainly microprudential approach, allowing EIOPA to make recommendations to the industry and enables supervisors to ask insurance undertakings to take remedial actions, where required, to improve their resilience. Participants are requested to estimate their position under two assumptions:
- Fixed balance sheet;
- Constrained balance sheet.
The 2021 exercise targets European (re)insurance groups and its selection process is mainly based on size, EU wide market coverage, business lines conducted (life and non-life business) and the number of represented jurisdictions.
EIOPA has consulted relevant stakeholders and participants during the preparation stage of the stress test package. Technical discussions with stakeholders occurred between mid-January to end-March. From mid-April to mid-May EIOPA carried out consultations with participants in the form of Q&As to provide clarifications and improve the stress test package.
Participants can submit requests for clarification on the Stress Test exercise to their National Supervisors by May 10, 2021.
The test is now, from the launch of the exercise today to the deadline for results submission (August 10, 2021) in the calculation phase, where participants are requested to calculate the results and indicators according to the prescribed scenarios.
The next phase is the validation phase from mid-August to end-October where quality assurance of the results is split into local quality assurance and central quality assurance. During the validation period, participants might be requested to provide clarifications or resubmit part of the results.
The final stage is results analysis and the drafting of the report which will occur in November and December.