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 In findings released on Sunday, the independent body said nearly one
in four European insurers could have trouble meeting obligations to
policyholders in coming years if the era of wafer-thin interest
rates continues.
"From now until the end of next year, we are going to see a flow of
actions - possibly capital in some situations - but also other types
of balance sheet management," Gabriel Bernardino, chairman of the
European Insurance and Occupational Pensions Authority (EIOPA), told
a news conference.
Unlike the European Central Bank's stress tests for the banking
sector, completed in October and prompting capital raisings by
lenders, EIOPA did not release the names of individual companies
that fell short in its tests.
Bernardino also played down prospects that financial markets would
try to pressure insurers to raise capital.
"We don't have the expectation that the market will want to close
the gap immediately," Bernardino said.
National insurance supervisors would use the stress test results to
home in on weaker insurers, seeking to correct mismatches in their
assets and liabilities, reviewing their product mixes and risk
management and encouraging changes to their business models, he
said.
In its report, EIOPA said 24 percent of insurers would not meet its
solvency capital requirement (SCR), a key regulatory threshold, in a
"Japanese-like" scenario of prolonged low interest rates.
"A continuation of the current low yield conditions could see some
insurers having problems in fulfilling their promises to policy
holders in 8-11 years' time," the watchdog said.
ECB interest rates are effectively at zero, with further easing of
credit conditions under preparation.
Low yields on relatively safe government and covered bonds hurt
insurers' investment income, making it increasingly difficult to
meet future obligations to policy holders.
The companies most at risk were those with a mismatch in the
maturity of their assets and liabilities and life insurers that had
given long-term guaranteed interest rates on savings policies, it
said, pointing to insurers in Austria, Germany, Malta and Sweden as
showing the biggest vulnerability.
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DOUBLE-HIT SCENARIO
EIOPA calculated a baseline for its tests using insurance capital
safety rules known as Solvency II, which take effect in January
2016. That baseline showed the sector was generally well capitalised,
though some firms came up short even before the stress test
scenarios.
"Nevertheless, 14 percent of the companies, representing 3 percent
of total assets, had an SCR (solvency capital requirement) ratio
below 100 percent," EIOPA said.
Industry observers say big diversified insurers such as Allianz
Axa and Generali are well prepared for Solvency II rules.
Smaller firms appeared more at risk in its most severe "double-hit"
stress scenario, involving a drop in asset values combined with a
rise in the value of future obligations.
EIOPA said 60 insurance groups and 107 individual companies took
part in its core stress test, representing 55 percent of premiums at
the EU level. Companies from all 28 EU member states, plus Norway,
Switzerland and Iceland were involved.
(Editing by Jeremy Gaunt)
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