EIOPA Consults on Methodological Principles for Insurer Stress Testing
EIOPA published a discussion paper on the methodological principles for stress testing the insurance sector in EU. The discussion paper sets out methodological principles and guidelines required for the conduct and assessment of an EU-wide insurance stress test exercise. In this paper, the key elements addressed by EIOPA include stress test process and objectives, scope of stress tests, scenario design of a stress test, shocks and their application in a stress test, and data collection and validation. The comment due date for this discussion paper is October 18, 2019.
In a supervisory bottom-up stress test, which is an exercise run by a supervisor or a regulatory authority, participating institutions are requested to calculate the impact of the prescribed shocks on their balance sheet and capital requirements, according to the provided guidance and by using their own models. The principles and guidelines set out in this discussion paper will be the toolbox to facilitate both the design and execution phase of the future EIOPA stress test exercises. The discussion paper is part of a broader process to enhance the stress testing framework. In this context, EIOPA will work on other related issues such as the assessment of liquidity positions under adverse scenarios, assessment of the vulnerabilities toward climate-related risks, and the potential approaches to multi-period stress tests.
EIOPA is required to conduct regular EU-wide stress test exercises for the insurance sector, in collaboration with ESRB. As part of the regular stress testing exercise, EIOPA is tasked with developing common methodologies for assessing the effect of adverse economic and financial scenarios on the insurance sector in EU, for application by national competent authorities. For each exercise, EIOPA can tailor specific elements of stress testing according to the market conditions and their potential negative implications for insurers. This paper is part of a general enhancement of the EIOPA approach to stress testing from a methodological and operational standpoint. Additionally, a reduction in the frequency of the EU-wide stress test exercises is under consideration, to allow proper follow-up analyses of the stress test results and to better develop and follow-up on the recommendations issued.
Related Links
Comment Due Date: October 18, 2019
Keywords: Europe, EU, Insurance, Stress testing, Methodological Principles, Solvency II, Systemic Risk, EIOPA
Featured Experts
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Nihil Patel
Data scientist; SaaS product designer; credit portfolio analyst and product strategist; portfolio modeler; correlation researcher
Previous Article
Joachim Wuermeling of Bundesbank Speaks on Implications of BrexitRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
