Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Financial Services UK newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360, London (May 10, 2021, 1:23 PM BST ) Europe's insurance watchdog has said it will assess the sector's resilience to market stress caused by the COVID-19 crisis, including the potential hit to investment profits from a prolonged period of low interest rates.
The European Insurance and Occupational Pensions Authority launched a bloc-wide stress test on Friday to evaluate how vulnerable Europe's insurers are to the economic fallout from the coronavirus.
The biennial test — which the regulator pushed back by a year in 2020 as insurers grappled with the pandemic — will examine the capital and liquidity positions of the 44 largest insurance groups. They cover 75% of the European Economic Area based on total assets.
The watchdog said that the stress test will assess how the groups will perform in an environment of prolonged low interest rates caused by COVID-19. The European Central Bank has kept interest rates down in recent quarters in an attempt to stimulate the bloc's sluggish economy.
Insurance companies make most of their profits from investing rather than from premiums, which means that low interest rates hit these returns.
"This stress test is of particular importance because it assesses the resilience of the solvency and liquidity positions of the European insurers against an adverse scenario that could materialize in the aftermath of an economic crisis," Peter Braumüller, vice chairman of the watchdog, said. "The scenario reflects severe but plausible shocks and will bring results that will shed light on the resilience of the European insurance sector."
The regulator said that the test will allow national supervisors to monitor whether insurance companies are able to withstand severe shocks. It will also allow supervisors to make recommendations to help insurers improve their resilience.
The scenario, which the watchdog said it developed with the European Systemic Risk Board — a body that sets out policies for financial stability — will test how insurers cope with a set of market shocks that could hit the sector. The scenario includes declining corporate earnings, a slowdown in the residential property market and long-term low interest rates.
Insurers have until August to submit their results, which the regulator will publish in December.
The watchdog's 2018 stress test gave EU insurers a clean bill of health overall. The exercise used scenarios including one in which Europe is battered by four storms, two floods and a pair of earthquakes, as well as a long period of low interest rates and a surge in life expectancy.
--Editing by Joe Millis.
For a reprint of this article, please contact reprints@law360.com.
