* Test includes adverse market scenarios, insurance shocks
* Results of EIOPA stress tests due in November
* EIOPA not expected to publish individual company results
* Industry worried test timetable is too tight
(Adds industry comment, detail)
By Jonathan Gould
FRANKFURT, April 30 Europe's top insurance
regulator on Wednesday launched the latest round of stress tests
to gauge insurers' ability to withstand shocks such as the
recent financial markets crisis.
The European Insurance and Occupational Pensions Authority
(EIOPA) will put insurers through their paces over the next few
months to examine how well capital safety buffers hold up
against hypothetical challenges and determine whether
policyholders could be at risk if a financial meltdown occurs.
The insurance stress tests will run parallel to separate
health checks of Europe's biggest lenders before the European
Central Bank takes over responsibility the region's banking
supervision in November.
"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," the
watchdog's chairman, Gabriel Bernardino, said in a statement.
Insurers have complained about the administrative and
financial burden placed on them by regulators in the stress
tests and in the switchover to new risk-based capital rules
being phased in over the coming years.
At the same time, the tight timetable for the exercise
presents a huge challenge for insurers, said Olav Jones, deputy
director general at industry body Insurance Europe.
"We therefore hope that EIOPA will allow companies to
perform it on a best-effort basis and to use some
simplifications," he said ahead of the EIOPA announcement.
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 examine specific insurance risks such as
changes in longevity, reserves and natural catastrophes.
"The design and the magnitude of the shocks will properly
stress insurance companies' financial position," Bernardino
EIOPA will also conduct a follow-up to an earlier study on
the effects on insurers of a prolonged period of low interest
Results of the stress tests, which will be based on the new
Solvency II capital rules that come into force for insurers at
the start of 2016, are due in November.
SMALL PLAYERS SQUEEZED
Big insurers such as Allianz, Axa,
Generali and Prudential Plc are thought to be
well prepared for both Solvency II and the stress tests.
"We will pass these tests without any problem," Talanx
Chief Executive Herbert Haas told Reuters last week.
However, smaller insurers have complained about the heavy
investment required in IT and the risk-management expertise
needed to comply with the new capital regime.
EIOPA's previous stress exercise, conducted in 2011, showed
that about 10 percent of the insurers tested did not meet the
minimum requirement for regulatory capital under an adverse test
scenario. Those 13 insurers were a combined 4.4 billion euros
($6.08 billion) short of the minimum, EIOPA found at the time.
EIOPA did not name the companies in 2011 and is not expected
to do so this year.
"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.
By contrast, past European banking stress tests have exposed
shortfalls at named lenders and forced many to raise equity
capital and take other steps to plump their safety cushions.
EIOPA said its tests will give supervisors and companies the
chance to see how the Solvency II rules work in practice and
identify vulnerabilities to be addressed in future.
"The conclusions of the exercise will allow EIOPA and
national supervisory authorities to define areas for further
investigation and to focus supervisory responses," EIOPA said.
($1 = 0.7237 Euros)
(Additional reporting by Marcin Goclowski in Warsaw; Editing by
Thomas Atkins and David Goodman)