EIOPA publishes insurance stress test recommendations

Three months after publishing the results of its 2021 insurance stress test, the European Insurance and Occupational Pensions Authority (EIOPA) has now released the regulator’s recommendations.  

Based on the findings of last year’s insurance stress test, EIOPA made the following recommendations:

1. NCAs (national competent authorities) to consider whether undertakings still reliant on transitional measures are taking concrete actions to reduce their dependency on measures introduced only to smooth the transition from the Solvency I to the Solvency II regime.
    
2. NCAs to further assess if the exposure to the risks that cause a large drop in SCR-ratio (solvency capital requirement) or a (near) breach of SCR-ratio is adequately managed.
    
3. NCAs to verify that undertakings allocate sufficient resources to ensure that their risk frameworks and models are sufficiently flexible to assess those risks that are not reported as part of the Solvency II reporting framework, particularly focusing on their ability to produce and process relevant data.
    
4. a) For undertakings that did not apply management actions even though they were warranted – NCAs to further investigate the reasons for not applying management actions and if these undertakings have sufficient options to apply management actions in case of need.
   
   b) For undertakings that have applied management actions, specifically those that relied on intra-group support or where there is interconnectedness with the banking sector – NCAs to further assess the viability and reported impact of these management actions where the applied actions departed from what was discussed in the pre-validation phase.
    
5. NCAs to assess the time it would take for participating undertakings to respond to adverse developments.
    
6. Supervisory actions, including on-site inspections, if needed, regarding one of the participants based on the information provided in the validation process.

“EIOPA has defined a series of follow-up actions and will undertake a coordinating role in the follow-up of the recommendations with the aim of enhancing future stress test exercises and contribute to a more resilient insurance sector in Europe,” stated EIOPA, which is a European Union financial regulatory institution.

“In addition, EIOPA considers that consistent and disciplined communication of the stress test results by participating entities would serve to limit distortions and contribute to a level playing field among insurers and also among other parts of the financial sector.”

The recommendations, said EIOPA, constitute the aggregation of the discussions and assessments of the individual stress test results of the 43 European insurance groups and one solo insurance undertaking that took part in the insurance stress test.