Simulated shock did not shake insurers in EIOPA’s stress test

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  • European insurance companies coped well in European Insurance and Occupational Pensions Authority EIOPA’s stress test.
  • The robust buffer in their solvency ratio allowed participants to absorb the shock of the adverse scenario.

EIOPA regularly conducts insurance stress tests to assess how well the European insurance sector could survive a severe but plausible risk to the financial system. Supervisors use the results of the stress tests to gain a deeper understanding of the risks and vulnerabilities of the sector. The 2021 insurance stress test assessed how insurers’ capital and solvency positions are affected by the prolonged COVID-19 pandemic and “lower for longer” interest rate environment.

European insurance companies coped well in European Insurance and Occupational Pensions Authority EIOPA’s stress test. Results of the stress test indicate European insurers’ financial stability is not at risk even under sever economic conditions.

The European insurance sector’s solvency ratio was 217.9% at the end of 2020. This robust buffer in the solvency ratio allowed participants absorb the shock of the adverse scenario.

“I’m pleased that at no point did participants report a post-stress asset position in which insurers’ commitments to policyholders would have been jeopardised”, says Chair of EIOPA Petra Hielkema.

The purpose of the EIOPA stress test was to assess the effects of various adverse scenarios on insurance companies and their vulnerability. Identifying the areas that require supervisory action was more important than the success or failure of individual participants.

“It is important to monitor the condition of the sector with stress tests”, notes FFI’s Deputy Managing Director Esko Kivisaari. “Getting positive results with stress test scenarios this severe tells that the moderate relaxing of requirements as proposed by the Solvency II review will be a step in the right direction. Policyholders will still remain well protected.”

The Finnish participants in the stress test were OP Financial Group and Sampo.

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