EIOPA stress test shows insurers' resilience to crises
The European Insurance and Occupational Pensions Authority (EIOPA) has conducted a stress test to assess the insurance industry's resilience to crises and confirmed that the sector can withstand extreme conditions. Even under the most severe scenarios, the solvency of all tested insurance groups remains stable.
“The results show that insurers are reliable partners for their customers even in extreme situations,” said Jörg Asmussen, Chief Executive Officer of the German Insurance Association (GDV). The test combined scenarios such as above-average inflation, low economic growth and geopolitical tensions.
Solvency remains stable even under stress
The comprehensive effects on private households, companies and the financial sector were analysed. High interest rates, falling property values and increased volatility lead to losses in assets, while rising borrowing costs make refinancing more difficult. “Such an extraordinary scenario has an extremely low probability of materialising at less than 0.03% - an event that theoretically occurs less than once every 3,000 years,” Asmussen explained.
Seven German insurance groups were required to take part in the EIOPA stress test. The Europe-wide results show: Despite a decrease in the average solvency ratio from 222 % to 140 %, capitalisation remains well above the critical level of 100 %. Taking into account reactive measures, all 48 European insurance groups that took part in the exercise met the solvency requirements.
EIOPA stress test is not a one-off exercise
Asmussen highlighted that comprehensive stress tests are already carried out regularly as part of Solvency II, the European regulatory framework for insurance companies: “We routinely simulate extreme situations and even review the capital requirements on a quarterly basis.”
The two approaches differ in the forecast used to determine the stress scenario. Solvency II assumes an event that occurs every 200 years. The probability of the stress scenarios under Solvency II is therefore significantly higher than of those used by EIOPA. The next EIOPA stress test is planned for 2027.
