EIOPA published a paper that sets out the main methodological elements, principles, and guidelines for an EU-wide stress testing exercise for insurers. The document will serve as a tool-box to inform and facilitate the design and execution phases of the EIOPA stress testing exercises. This methodological paper, which has been published post a stakeholder consultation, is part of a general enhancement of the EIOPA approach to stress testing from methodological and operational standpoints.
Supervisory stress tests can be implemented through a top-down or bottom-up approach. This paper focuses on bottom-up or institution-run supervisory stress tests. The paper describes the micro- and macro-prudential objectives and approaches for stress tests, elaborates on the scope of a stress test exercise, covers scenario design, considers the calibration and application of specific shocks, and discusses the approaches to data collection and validation of the stress test results. The paper specifies requirements for data reporting and emphasizes that the set of templates used to report the results under the baseline and stressed scenarios should be as close as possible to the Solvency II QRT. The information requested in the stress test may be quantitative or qualitative.
Additionally, a reduction in the frequency of the EU-wide stress test exercises to a three-year cycle is expected to allow proper follow-up analyses of the stress test results and to better develop and follow-up on the recommendations issued. Between two stress test exercises, EIOPA will conduct focused sensitivity analyses and assessments of specific exposures through top-down and/or bottom-up approaches, thus reducing the burden on the industry. EIOPA plans to issue an additional paper on specific topics related to stress tests, such as the assessment of liquidity positions under adverse scenarios, the assessment of positions against transition and physical risks stemming from climate change and the potential approaches to multi-period stress tests.
Stress tests can provide additional insights and forward-looking perspective on the risk and vulnerabilities of insurers that cannot be derived from the regular Solvency II reporting. EIOPA conducts regular EU-wide stress test exercises for the insurance sector, in collaboration with ESRB. Currently, the methodology for EIOPA stress tests is specified separately for each exercise in technical specifications. Given the complexity involved in conducting EU-wide stress tests for insurers, having a set of pre-determined common methodological principles and guidelines can significantly facilitate the stress testing process. Therefore, EIOPA has developed this guide to serve as a tool-box to inform and facilitate the design and execution phases of the EIOPA stress testing exercises.
Related Link: Methodological Principles for Stress Testing
Keywords: Europe, EU, Insurance, Stress Testing, Methodological Principles, Solvency II, Systemic Risk, Bottom-Up Stress Test, Reporting Template, EIOPA
A well-recognized researcher in the field; offers many years of experience in the real estate ﬁnance industry, and leads research efforts in expanding credit risk analytics to commercial real estate.
Previous ArticleEC and ECB Reports Discuss Financial Integration in EU
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.