Supervisor makes recommendations after stress test

March 22, 2022 – The European insurance regulator says reliance on Solvency II transitional measures based on stress test results should be reduced from 2021. Among other things, it should also check whether the risks that significantly reduced solvency ratios in The test is appropriately administered. The second set of topics relate to (potential) management actions.

EUPA headquarters, Frankfurt/Main (Photo: EUPA)

The European Insurance and Occupational Pensions Authority (Eoba) conducted a “stress test” in 2021, which 44 participants underwent.

The results were published in December (VersicherungsJournal 12/20/2021).

It became clear that solvency ratios had suffered in various stress scenarios and had even fallen below the 100 per cent mark for some companies.

At the time, Eiopa found that obligations to customers were never at risk.

recommendations from the results

She also indicated that she wanted to consider recommendations based on the findings. On Monday, recommendations for national regulators and insurance companies were published.

According to Frankfurt, its implementation will lead to more flexibility in the European insurance sector.

Depending on the topic, the general recommendations target a group of national supervisors of varying widths and comprise two categories.

Transitional measures and risk assessment

Eiopa came to the conclusion that it is necessary to reduce the reliance of insurance companies on second solvency “transitional measures”, which became possible as part of the introduction of special funds and the prudential framework.

According to Eiopa, the relevant national authorities should also verify whether the risks that caused significant reductions in the solvency ratio of the stress test were “appropriately managed”.

They should also consider whether companies are allocating sufficient resources to adequately assess risks that are not identified in Solvenvy II’s Framework for Reporting.

Measures to deal with adverse conditions

The second block deals with the management of unfavorable conditions. Eiopa encourages the relevant national authorities to investigate why some companies choose not to apply potential management measures.

For the insurance companies that have conducted this review, it is suggested that they carry out an additional analysis of the feasibility and report on the impact of the measures taken.

National supervisors must also assess how quickly companies can respond to unfavorable developments.

The main factors for this assessment: decision-making processes, the ability to collect relevant information in a short time, as well as the models used to achieve the desired result in the end.

Downloadable

The “2021 Insurance Stress Test Recommendations” (8 pages, in English) can be downloaded as a PDF document Downloaded from Eiopa website.