About 10% of European insurers would fail Solvency II capital stress test based on market crash risks: EU financial regulator

About 10% of European insurers would fail Solvency II minimum capital requirements under a hypothetical adverse stress scenario akin to the 2008-09 global market crash, according to the European Insurance and Occupational Pensions Authority (EIPOA).
The supervisor of the financial sector in the European Union undertook a stress test of 221 insurance and reinsurance groups and companies headquartered in the European Union, Iceland, Liechtenstein, Norway and Switzerland. (The reported results are for 58 groups and 71 companies due to aggregation of the results of companies within groups.)
The test involved an adverse scenario affecting interest rates, some form of a crash in the real estate and equity markets and the spectre of rapidly increasing inflation.
“The results of this stress test indicate that overall the European insurance market is well prepared for potential future shocks as tested in this exercise,” EIPOA reported. “However, data showed that approximately 10% (13) of the participating groups and companies do not meet the MCR (Minimum Capital Requirements) under the adverse scenario. Eight per cent (10) fail to meet the MCR in the inflation scenario.”
The insurance groups and companies that did not meet the Solvency II MCR threshold showed a solvency deficit of €4.4 billion if the adverse scenario were to occur and €2.5 billion if the inflation scenario were to materialize, EIPOA reported.
An adverse sovereign bond scenario was covered separately in a supplementary test. The results of the shock on sovereign bond yields suggested 5% (6) of the participating groups and companies would not meet the MCR.
EIPOA said it planned to take up the results with the individual participating companies.