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    EIOPA Issues Recommendations Post Insurance Stress Tests

    March 21, 2022

    The European Insurance and Occupational Pensions Authority (EIOPA) issued recommendations to supervisors and insurers, based on the lessons learned from the 2021 insurance stress test.

    The recommendations to supervisors and insurers address identified vulnerabilities, actions to manage adverse conditions, suggestions applicable to specific undertakings. The recommendations constitute the aggregation of discussions and assessments of the individual stress test results of the 43 European insurance groups and one solo insurance undertaking that participated in the 2021 insurance stress test of EIOPA. EIOPA recommends the following key actions for national competent authorities:

    • Consider whether undertakings still reliant on transitional measures are taking concrete actions to reduce their dependency on measures introduced only to smooth the transition from the Solvency I to the Solvency II regime
    • Assess if the exposure to risks that cause either a large drop in Solvency Capital Requirement (SCR)-ratio or a (near) breach of SCR-ratio is adequately managed
    • Verify that undertakings allocate sufficient resources to ensure that their risk frameworks and models are sufficiently flexible to assess those risks that are not reported as part of the Solvency II reporting framework, particularly focusing on their ability to produce and process relevant data
    • Further investigate (for undertakings that did not apply management actions, even though they were warranted), the reasons for not applying management actions and if these undertakings have sufficient options to apply management actions in case of need
    • Further assess the viability and reported impact of the management actions (for undertakings that have applied such actions) in case the applied actions deviated from what was discussed in the pre-validation phase—applies to undertakings that relied on intra-group support or where there is interconnectedness with the banking sector)
    • Assess the time it would take for undertakings to respond to adverse developments—including assessment of the decision-making processes, the ability to gather necessary information in a short timeframe, and the flexibility and adequacy of models used by the undertakings to produce required results
    • Supervisory actions, including on-site inspections, if needed, regarding one of the participants based on the information provided in the validation process

     

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    Keywords: Europe, EU, Insurance, Stress Testing, Recommendations, Solvency Capital Requirement, Solvency II, Reporting, EIOPA

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