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December 14, 2018

EIOPA published the results of its 2018 and fourth stress test for the insurance sector in EU. In this year's exercise, 42 European (re)insurance groups participated representing a market coverage of nearly 75%, based on total consolidated assets. The reference date was December 31, 2017. To date, only four of the 42 participating groups provided consent to the publication of the individual results.

The impact of the different scenarios on the balance sheet position and on the capital position of the participating groups was assessed by the excess of Assets over Liabilities and an estimation of the post-stress Solvency Capital Requirement (SCR) ratio. In the pre-stress (baseline) situation, participants reported an aggregate Assets over Liabilities (AoL) ratio of 109.5 % and a pre-stress SCR coverage of 202.4%. Overall, the exercise confirmed the significant sensitivity to market shocks combined with specific shocks relevant for the European insurance sector. On aggregate, the sector is adequately capitalized to absorb the prescribed shocks. The following are results with respect to the three stress scenarios:

  • In the "yield curve up" scenario, the excess of assets over liabilities is reduced by approximately one third (-32.2%) and the aggregate post-stress SCR ratio drops to 145.2%. Six groups reported a post-stress SCR ratio below 100%.
  • In the "yield curve down" scenario, the impact on the excess of assets over liabilities is of similar magnitude (-27.6%) with an aggregate post-stress SCR ratio of 137.4%. Seven groups reported a post-stress SCR ratio below 100%.
  • In the "natural catastrophe" scenario only a small decrease of 0.3 percentage points of assets over liabilities ratio was reported. Overall, the participating groups demonstrate a high resilience to the series of natural catastrophes tested, showing the importance of the risk transfer mechanisms in place, namely reinsurance, which absorbed 55 % of the losses. Consequently, the most affected groups are reinsurers and those direct insurers largely involved in reinsurance activities.

 

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Keywords: Europe, EU, Insurance, Stress Testing, Solvency II, EIOPA

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