One in four insurers may struggle to meet solvency

One in four insurers may struggle to meet solvency capital ratio (SCR) standards in a prolonged low yield scenario.

This is according to a statement by the European Insurance and Occupational Pensions Authority (EIOPA) following a stress test of the industry.

The test found that if interest rates are still low in eight to 11 years time under the Japanese-style persistent low interest rate scenario, 24 percent of the 225 companies participating could face problems in fulfilling their promises to policyholders. Under the ‘inverse’ scenario, where there is an atypical change in the shape of the yield curve, 20 percent of companies would not meet the threshold.

Currently, 14 percent of the companies representing 3 percent of total assets, had an SCR ratio below 100 percent. However, it added that the results of the baseline scenario indicated that the sector is in general sufficiently capitalised in Solvency II terms.

Gabriel Bernardino, chairman of EIOPA, said: “EIOPA’s stress test 2014 was a truly preventive supervisory tool. It gave EU supervisors an updated picture of the undertakings preparedness to comply with the upcoming Solvency II capital requirements and by applying a set of rigorous and severe stresses indicated to us the areas where undertakings are most vulnerable. EIOPA’s recommendations will ensure that the vulnerabilities identified are addressed and that follow-up actions by NSAs will be taken in a consistent way.”