The test package comprises two modules. The core module of the exercise includes two adverse market scenarios, covering financial asset stresses (sovereigns, corporate bonds and equities) as well, as shocks to real estate assets prices’ and interest rates stresses. The adverse market scenarios are complemented by a set of independent insurance-specific shocks covering mortality, longevity, insufficient reserves and catastrophe shocks. The second module addresses the impact of a low yield environment and is a follow-up to EIOPA’s Opinion on Supervisory Response to a Prolonged Low Interest Rate Environment. The adverse market scenarios have been developed in cooperation with the European Systemic Risk Board (ESRB).

It is envisaged that the stress test will cover at least 50% of the market share in each country both of life and non-life segments. Its results will provide a clear vision on the resilience of the insurance sector to different shocks and identify issues that require further supervisory response.

The technical basis of the stress test is the new insurance regulatory regime Solvency II, which will apply as of 1 January 2016. Simultaneous with the launch of the exercise, EIOPA publishes the Solvency II Technical Specifications for the preparatory phase that will provide a ground for undertakings to value assets and liabilities and to calculate solvency/minimum capital requirements and own funds.

The exercise will be run in close cooperation with national supervisory authorities (NSAs). The NSAs will collect data from undertakings in July 2014 and validate the information before it is aggregated at the EU level. To improve consistency in the calculations, during August and September 2014, EIOPA in cooperation with NSAs will conduct an EU-wide validation of the data received. Results of the stress test analysis will be disclosed in November 2014.

To facilitate the participation of undertakings in the exercise EIOPA will hold a workshop and will launch a Q&A tool to address queries raised by participants when completing the test.

Gabriel Bernardino, Chairman of EIOPA, said: “EIOPA’s stress test is focused on the overall resilience of the insurance sector in the EU and on the identification of its major vulnerabilities in the emergence of relevant shocks. I believe that the design and the magnitude of the shocks will properly stress insurance companies’ financial position and that the conclusions of the exercise will allow EIOPA and NSAs to define areas for further investigation and to focus supervisory responses”.

Insurance Stress Test 2014: https://eiopa.europa.eu/activities/financial-stability/insurance-stress-test-2014/index.html