The latest round of insurance stress tests, designed to see if insurers hold enough capital to be resilient in risky scenarios, found that the industry remains “robust”, according to the European Insurance and Occupational Pensions Authority.
When tested for a severe market deterioration due to macroeconomic changes, 90 per cent of those tested met all the minimum capital requirements prescribed by the incoming Solvency II regulation.
But 13 companies failed that test while ten companies did not have the capital reserves to cope with the inflation test, based on a scenario where rising inflation causes interest rates to rise rapidly.
EIOPA chairman Gabriel Bernardino said Europe’s insurance sector “remains robust in the occurrence of major shocks” but warned that firms were also vulnerable to negative developments in sovereign bond markets.
EIOPA tested the business models and capital reserves of 221 insurance and reinsurance groups between March and May against a range of market, credit and insurance event risks.
Shock scenarios ranged from large and unexpected interest rate or property market changes to huge national catastrophes or pandemics.