EU watchdog starts test of insurers' resilience to shocks

FRANKFURT, April 30 Wed Apr 30, 2014 10:00am EDT

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FRANKFURT, April 30 (Reuters) - Europe's top insurance regulator EIOPA on Wednesday launched the latest round of stress tests to gauge insurers' preparedness to withstand shocks like the recent financial market crisis.

The European Insurance and Occupational Pensions Authority (EIOPA) will put insurers through the paces in the next few months to see how well capital safety buffers hold up against hypothetical challenges to determine if policy holders could be at risk if a financial meltdown occurs.

"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," said watchdog chairman Gabriel Bernardino in a statement.

The insurance stress tests will run in parallel to separate health checks of Europe's biggest lenders before the European Central Bank takes over responsibility for banking supervision in November.

EIOPA has devised scenarios to measure the effect on insurers of market volatility in government and corporate debt, equities, real estate and interest rates.

It will also probe specific insurance risks such as changes in mortality, longevity, reserves and natural catastrophes.

"The design and the magnitude of the shocks will properly stress insurance companies' financial position," Bernardino said.

EIOPA will also conduct a follow-up to an earlier study on the effects of a prolonged bout of low interest rates on insurers. The stress test results are due in November.

Unlike the bank health checks, which may reveal capital shortfalls that lenders would need to plug quickly, EIOPA is not expected to publish names of individual companies that fall through in its tests.

"This is not about the individual failure of companies. This is not a pass/fail test," Bernardino told the Reuters Financial Regulation Summit on Monday.

(Reporting by Jonathan Gould; editing by Thomas Atkins)

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