Regulator: 10% of European insurers fail stress test

About 10 percent of European insurance companies tested do not have enough capital to withstand exceptional economic shocks, results published by the sector regulator showed on Monday. But with a success rate of 90 percent, "overall, the European insurance sector remains robust in the occurrence of major shocks," the European Insurance and Occupational Pensions Authority (EIOPA) said. The tests examined 221 insurance and re-insurance companies which account for about 60 percent of the overall insurance market in the 27 members of the European Union plus Iceland, Liechtenstein, Norway and Switzerland. They incorporated stricter criteria for capital requirements that are to take effect in January 2013 under so-called Solvency II regulation but which have not yet been finalised. Of the insurance companies tested, "data showed that approximately 10% (13) of the participating groups and companies do not meet the MCR (minimum capital requirements) under the adverse scenario," the statement said. "Eight percent (10) fail to meet the MCR in the inflation scenario," it added in reference to a hypothetical case in which inflation forced central banks to quickly raise their interest rates. "The insurance groups and companies who did not meet the MCR threshold show a solvency deficit of €4.4 billion ($6.38 billion) if the adverse scenario were to occur and €2.5 billion if the inflation scenario were to materialise," the statement said. The test scenarios included market, credit and insurance-related risks. EIOPA carried out an additional test to evaluate sovereign bond exposures, it said. The regulator underscored that the tests were based on hypothetical and severe stress scenarios and were not a forecast of what it expected to happen. It published aggregate results for the entire market, rather than use a company-by-company format for banks that are expected sometime this month.