14% of EU insurers fail 'baseline' EU stress tests

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A test of more than half of Europe's insurers by market share has found that one in twelve are currently likely to fail to meet solvency capital requirements when the Solvency II regime launches in just over a year.

Tests by the European Insurance and Occupational Pensions Authority looked at insurers representing 55% of the EU market.

While individual firms were not named, Eiopa said that the firms represented 3% of assets for the market, with just one of largest thirty participants falling within this group.

Eiopa has responded by calling for action from national supervisors, demanding rigorous assessment to assess where capital increases or management action will be needed.

Chairman Gabriel Bernardino said: "Eiopa's stress test 2014 was a truly preventive supervisory tool.

"It gave EU supervisors an updated picture of the undertakings preparedness to comply with the upcoming Solvency II capital requirements and by applying a set of rigorous and severe stresses indicated to us the areas where undertakings are most vulnerable.

"Eiopa's recommendations will ensure that the vulnerabilities identified are addressed and that follow-up actions by NSAs will be taken in a consistent way".

In a second set of tests, which examined insurers representing 60% of the market share in the EU and Norway, 24% of insurers were found likely to fail solvency capital requirements in a prolonged period of "Japan-like" low yields.

And one in five tested were found likely to fall short of their solvency capital requirements in the case of a sudden reverse in interest rates.

Insurance Europe deputy director general Olav Jones said that stresses used in testing were "very severe".

"The fact that the insurers' capital went down after these kinds of severe events is quite normal, and it is very encouraging to see that even after such severe events generally companies will still be able to meet their full solvency capital requirements," Jones said.

"As pointed out in the recommendations of this report, there is still work for both the industry and national supervisors to do in preparation. To that end, the industry continues to work hard with Eiopa and national supervisors to prepare for Solvency II implementation."

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