NBB published a presentation on the results of the 2019 stress tests on insurance undertakings. Also published was the data on the seven Belgian insurance companies that have participated in all parts of the NBB insurance stress test for 2019. Overall, the results of the exercise reveal that the largest Belgian insurance companies are resilient toward increases in Belgian sovereign bond (OLO) spread. Most insurers have risk mitigation techniques in place to mitigate some of the impact (spread lock derivatives, retaining foreseeable dividends).
In 2019, a significant part of the Belgian insurance sector was subject to a stress test consisting of two scenarios. The first scenario (Belgian Adverse) assessed the impact of a repricing of the Belgian sovereign debt on the solvency positions of insurers. The Belgian Adverse scenario consisted of three parts: 100 basis points increase of the OLO spread; 200 basis points increase of the OLO spread; and the Reverse stress, whereby the insurer has to determine the OLO spread increase at which its solvency ratio drops below 100%. The second scenario (Low Yield) assessed the impact of a continued decline in the risk-free rates on the solvency positions of insurers. The aim of the stress test was to assess the impact of OLO spread increase on the solvency of the largest Belgian insurers and to assess the functioning of the volatility adjustment mechanism, should an idiosyncratic OLO spread increase occur.
Keywords: Europe, EU, Belgium, Insurance, Stress Testing, Adverse Scenario, Low Yield Scenario, Volatility Adjustment, Belgian Sovereign Bond, OLO, NBB
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