Featured Product

    EIOPA Publishes Results of Occupational Pensions Stress Test 2019

    December 17, 2019

    EIOPA published the results of its 2019 Institutions for Occupational Retirement Provisions (IORPs) stress test. This biennial exercise assesses the resilience and potential vulnerabilities of the European Defined Benefit and Defined Contribution pensions sector, tailored to the specificities of the diverse European pensions sector and its potential impact on financial stability. For the first time, the European stress test exercise covered the analysis of Environmental, Social, and Governance (ESG) factors for IORPs. EIOPA also published a factsheet, a presentation by the EIOPA Chair Gabriel Bernardino, and the frequently asked questions on the IORP stress test.

    Nineteen countries participated in the exercise, covering more than 60% of the national Defined Benefit and 50% of the national Defined Contribution sectors in terms of assets—in most countries. In total 176 IORPs participated, out of which 99 were Defined Benefit IORPs and 77 were Defined Contribution IORPs. The results of the 2019 stress test show that the European Economic Area pensions sector is better funded in the baseline compared to previous exercises. To some extent, this results from the absence of the UK sector from the exercise, which has been facing significant challenges in recent years and which—due to its size—had dominated previous EIOPA pensions stress tests. Yet, the second largest IORP sector in the European Economic Area, the Netherlands, was affected by the relatively high exposure to U.S. equities and the heavy U.S. market volatilities in the baseline at the end of 2018, which subdued in the course of 2019.

    In the 2019 exercise, EIOPA employed an extended cash flow analysis, which provided important insights into the stress effects in terms of timing: IORPs' financial situation would be heavily affected in the short term, leading to substantial strains on sponsoring undertakings within a few years after the shock and resulting in potential long-term effects on the retirement income of members and beneficiaries over decades (should the short-term effects become permanent). Assessing the potential conjoint investment behaviors of IORPs after the stress event, EIOPA observed an expected tendency to re-balance to pre-stress investment allocations within 12 months after the shock. That may indicate countercyclical aspects of the expected investment behavior, yet would also come at a risk.

    The majority of IORPs in the sample indicated having taken appropriate steps to identify sustainability factors and ESG risks for their investment decisions, which is important for an effective implementation of the IORP 2 Directive; however, only 30% of these IORPs have processes in place to manage ESG risks. Additionally, only 19% of the IORPs in the sample assess the impact of ESG factors on risks and returns of investments. The preparedness of IORPs to integrate sustainability factors is widely dispersed and seems correlated to how advanced the national frameworks were. EIOPA will follow-up on the findings and analyze, in more depth, the investment behavior of IORPs, in particular in the persistently ultra-low and negative interest rate environment. To do so, EIOPA will make use of the significantly improved pensions reporting from 2020. Going forward, EIOPA wants to further improve its analytical tool set for stress testing IORPs, extending the horizontal approach and, with that, assessing the common exposures and vulnerabilities of the Defined Benefit and Defined Contribution sectors together.


    Related Links

    Keywords: Europe, EU, Insurance, Stress Testing, Occupational Pensions, IORPs, ESG, IORP2, Defined Benefit, Defined Contribution, Climate Change Risk, Sustainable Finance, EIOPA

    Featured Experts
    Related Articles

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582