December 13, 2017

EIOPA published the report describing results of the 2017 Occupational Pensions Stress Test. The European defined benefit (DB) and hybrid occupational pension sector has, on average, insufficient assets to meet pension liabilities on the national balance sheet, both in the baseline and adverse market scenario. These vulnerabilities are even more pronounced on the common, market-consistent balance sheet, providing a more comparable and realistic view of the financial position of the Institutions for Occupational Retirement Provision (IORPs).

The shortfalls on the common balance sheet—EUR 349 billion in the baseline and EUR 702 billion in the adverse scenario—would need to be covered by increased sponsor support and/or by benefit reductions. The defined contribution (DC) occupational pension sector would experience a drop of 15% in the market value of investment assets in the adverse scenario, reducing the individual accounts of DC pension scheme members and, in case the scenario persists, leading to lower pension income when the members enter retirement. More than a quarter of IORPs providing DB and hybrid schemes are covered by a sponsor that may not be able to (fully) support the pension promise following the adverse scenario. In addition, the stress test results show that pension obligations may exert substantial pressure on the solvency and future profitability of companies with a potential spillover to the real economy.

The exercise assessed the resilience of IORPs to a "double-hit" scenario, combining a drop in risk-free interest rates with a fall in the price of assets held by IORPs. The exercise also assessed the potential transfer of shocks from IORPs to the real economy and financial stability through sponsor support and benefit reductions. The stress test is not a pass-or-fail exercise for the participating IORPs. The stress test covered DB and hybrid as well as DC schemes. Overall, 195 IORPs from twenty member states of the European Economic Area participated in the exercise, representing a coverage rate of 39% of total assets. EIOPA’s target coverage rate of 50% was not reached in some member states due to the lack of power of the respective national competent authority to require participation in the exercise. Such inadequate supervisory powers constitute an additional risk because relevant authorities are not able to assess vulnerabilities during adverse market conditions.

Related Links

Keywords: Europe, EU, Insurance, Stress Testing, Occupational Pensions, IORP, DB, DC, EIOPA

Related Articles
News

FSB Chair Reports to G20 on Implementation of Financial Reforms

FSB published the letter to G20 Leaders and the opening statement from an FSB briefing by the FSB Chair Randal K. Quarles.

June 25, 2019 WebPage Regulatory News
News

FSB Summarizes Progress in Implementation of G20 Regulatory Reforms

FSB published a summary progress report on implementation of the G20 financial regulatory reforms.

June 25, 2019 WebPage Regulatory News
News

EBA Issues 2020 Stress Test Methodology and Templates for Discussion

EBA published the 2020 EU-wide stress test draft methodology, templates, and template guidance, for discussion with the industry.

June 25, 2019 WebPage Regulatory News
News

SRB Updates MREL Policy to Reflect Changes in CRR 2

SRB updated its policy on minimum requirement for own funds and eligible liabilities (MREL) as a result of the revisions in the recent Banking Package.

June 25, 2019 WebPage Regulatory News
News

OSFI Updates Manual of Reporting Forms and Instructions for Insurers

OSFI issued its annual update for 2019 to the manual of financial reporting forms and instructions for property and casualty (P&C) insurance companies.

June 25, 2019 WebPage Regulatory News
News

PRA Consults on PRA110 Reporting Frequency Threshold

PRA proposed (CP14/19) to amend the reporting frequency of PRA110 reporting template (PRA110) when a firm is in stress.

June 25, 2019 WebPage Regulatory News
News

APRA Updates Guidance on Managing Information Security Risks

APRA released an updated Prudential Practice Guide CPG 234 on managing information security risks, including cyber-crime.

June 25, 2019 WebPage Regulatory News
News

IMF Releases Report on 2019 Article IV Consultation with United States

IMF published its staff report in the context of the 2019 Article IV consultation with the United States.

June 24, 2019 WebPage Regulatory News
News

FCA and US Agencies on Addressing Issues in Credit Derivatives Market

U.S. SEC Chairman Jay Clayton, U.S. CFTC Chairman J. Christopher Giancarlo, and UK FCA Chief Executive Andrew Bailey issued a joint statement announcing plans to address concerns regarding opportunistic strategies in the credit derivatives markets.

June 24, 2019 WebPage Regulatory News
News

BIS Report Discusses Regulatory Issues Related to Big Techs in Finance

BIS has pre-released a chapter of the BIS Annual Economic Report; this chapter focuses on the risks and opportunities presented by large technology firms in the financial services sector.

June 23, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3315