Brussels, 01/12/2014 (Agence Europe) - The European insurance industry is “in general sufficiently capitalised”, according to the European Insurance and Occupational Pensions Authority (EIOPA), which published the results of its stress tests on Sunday 30 November.
The financial situations of 60 insurance groups and 107 insurance companies, representing at least 50% of the insurance markets of each member state plus Switzerland, Norway and Iceland, were checked for their compliance with the rules of the 'Solvency II' legislative package, which will apply from January 2016 (EUROPE 11158).
The results of the stress tests show that 14% of the companies which made up the pool, or around 3% of all assets managed, had an SCR ratio below 100%. The Solvency Capital Requirement (SCR) is the level of own funds which must be held in order to allow an insurance company to guarantee with virtual certainty (probability of at least 99.5%) that it will be able to pay out policyholders if required over a period of 12 months. Insurance companies which do not comply with their SCR obligations may continue to practise their activities and accept new clients, but must not increase their capital quickly.
According to the European authority, the insurance sector appears to be “more vulnerable” to a situation combining a drop in the value of the assets and a lower 'risk-free' rate. Furthermore, in the event of a continuation of the current climate of low interest rates to which 225 individual companies in all member states plus Norway are subjected, “24% of insurers would not meet their SCR and certain companies could face problems in meeting the promises in 8-11 years' time”, reports EIOPA, which did not reveal the names of any of the companies which fared poorly in the stress tests.
The exercise, the first since 2011, showed that the insurance sector is particularly vulnerable to risks of mass lapse, related to longevity and natural disasters.
According to the Commissioner for Financial Stability, Jonathan Hill, these “serious and thorough” stress tests show that “the European insurance sector is, broadly speaking, in good health, although vulnerabilities have been identified, in particular for some smaller insurers”. “The stresses used were very severe and covered all the major risks that insurers take on to protect their policyholders”, the organisation Insurance Europe commented in a press release. (MB)