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
    News

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News
    News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News
    News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News
    News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News
    News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News
    News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News
    News

    MFSA Sets Out Supervisory Priorities, Issues Reporting Updates

    The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023

    March 02, 2023 WebPage Regulatory News
    News

    German Regulators Issue Multiple Reporting Updates for Banks

    Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022

    March 02, 2023 WebPage Regulatory News
    News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News
    News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8806