Featured Product

    EIOPA Sets Out Principles for Liquidity Stress Test for Insurers

    January 26, 2021

    EIOPA published a paper that sets out the methodological principles of insurance stress testing with a focus on the liquidity component. The paper sets out methodological principles that can be used to design bottom-up stress test exercises to assess the vulnerability of insurers to liquidity shocks. This second methodological paper is part of a series of papers, has been published post a stakeholder consultation, and represents a further step in enhancement of the stress testing framework of EIOPA.

    The Solvency II regime is designed to ensure a sound capital position of insurance and reinsurance undertakings but it does not include quantitative requirements and relative metrics with respect to liquidity position. The absence of a commonly agreed approach to assess the liquidity sources and needs of insurers and reinsurers, the subsequent absence of standardized metrics such as Solvency Capital Requirement (SCR) for the capital position, and the lack of a specifically designed data collection makes a methodological discussion on the liquidity stress test more difficult. Considering this, the paper proposes a definition of “liquidity position” and specific metrics to measure this position for an insurance and reinsurance undertaking. Amid the increasing consideration given to liquidity risk by the insurance industry and by the supervisors at European and global levels as well as in the absence of a commonly adopted liquidity framework for industry in EU, the paper presents a conceptual approach to the assessment of the liquidity position of insurers under adverse scenarios. 

    The paper provides the background on liquidity risk in the insurance industry as well as a definition of liquidity risk for the sector. The paper describes the micro- and macro-prudential objectives of liquidity stress test exercise and elaborates on the scope of a stress test exercise. It further describes the building blocks of a liquidity stress test exercise starting from the exposures of insurers to liquidity risk and the potential metrics to measure them. The paper also presents the proposed approach to the design of scenarios to be used in liquidity stress test, including narrative, shocks, and their calibration. The guidelines on the application of the shocks with some examples on potential analysis and presentation of results are also included in the paper. The conclusions are based on the current understanding and knowledge of the liquidity risk in the insurance industry. Hence, this might evolve in the future to reflect the experience gained in the assessment of such risk at European and global levels. Other topics such as climate change and multi-period framework for the bottom-up insurance stress testing will be published at a later stage.

     

    Related Links

    Keywords: Europe, EU, Insurance, Stress Testing, Liquidity Risk, Solvency II, Liquidity Stress Test, EIOPA

    Featured Experts
    Related Articles
    News

    BIS Examines Use of Big Data and Machine Learning at Central Banks

    BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.

    March 04, 2021 WebPage Regulatory News
    News

    APRA Finalizes Reporting Standard for Operational Risk Requirements

    APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.

    March 03, 2021 WebPage Regulatory News
    News

    ECB Publishes Guide for Determining Penalties for Regulatory Breaches

    ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.

    March 02, 2021 WebPage Regulatory News
    News

    MAS Sets Out Good Practices to Manage Operational Risks Amid COVID

    MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.

    March 02, 2021 WebPage Regulatory News
    News

    ACPR Announces New Data Collection Application for Banks and Insurers

    ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.

    March 02, 2021 WebPage Regulatory News
    News

    BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox

    BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.

    March 02, 2021 WebPage Regulatory News
    News

    EIOPA Launches Study on Non-Life Underwriting Risk in Internal Models

    EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.

    March 01, 2021 WebPage Regulatory News
    News

    SRB Publishes Overview of Resolution Tools Available in Banking Union

    SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.

    March 01, 2021 WebPage Regulatory News
    News

    EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR

    EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).

    March 01, 2021 WebPage Regulatory News
    News

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    March 01, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6655