A.M. Best Comments on Results of EIOPA’s Insurance Stress Test

December 9, 2014

A.M. Best said it would be premature to draw negative conclusions from the most recent Solvency II stress tests conducted by the European Insurance and Occupational Pensions Authority (EIOPA) and does not anticipate any rating implications at this stage.

In the Best’s briefing titled “A.M. Best Comments on Results of EIOPA’s Insurance Stress Test,” A.M. Best notes that the results (published on Nov. 30) stated the insurance sector was “in general sufficiently capitalized in Solvency II terms.”

However, the survey showed 14 percent of companies (representing 3 percent of total assets) had a solvency capital requirement (SCR) ratio below 100 percent. Furthermore, in a prolonged low-yield scenario, 24 percent of insurers would be unable to meet their SCRs and “certain companies” could face problems in meeting their promises in eight to 11 years’ time.

A.M. Best also said the tests were carried out on the basis of insurers’ positions as at Dec.31, 2013.

“This was at a time when most insurers had not completely implemented their plans for arranging their businesses to conform to Solvency II regulations,” said Anthony Silverman, senior financial analyst.

“Solvency II is, in A.M. Best’s view, excessively prudent in its treatment of some long-term products, and as such, is likely to produce idiosyncratic results for some insurers. This may be particularly true of these tests, which were largely conducted without the application of internal models but using the standard formula prescribed by the European Union,” he continued.

Yvette Essen, director, industry research – Europe & Emerging Markets, added: “Whilst the tests do highlight that one in four insurers would face problems in a prolonged low-yield scenario, A.M. Best sees scope for current calibrations and approaches in Solvency II to evolve over time.”

Source: A.M. Best Company

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