Allianz, Aviva and Axa are among the European Union’s 30 largest insurers to go through stress tests in December to help policymakers judge their resilience to economic shocks and improve supervision.
The insurers will face three scenarios including an adverse shock that mirrors the performance of markets over the 12 months from September 2008, the Committee of European Insurance and Occupational Pensions Supervisors (Ceiops), said on Friday.
It will be the first time that stress tests have been conducted across the European insurance industry and follows a series of stress tests on the 22 largest banks, the latest of which gave banking a clean bill of capital health last month.
Ceiops, which could become a powerful pan-European supervisor itself under draft legislation published last month, postponed making a decision on a key element of its advice on new capital rules for insurers. These are expected to hit UK annuity writers especially hard.
The body’s member regulators have been discussing the new Solvency II capital rules over the past two days. It issues its first wave of advice to Brussels in about 10 days time. It will reduce some of what the insurance industry called the “excessive conservatism” contained in its consultation papers this summer, according to one person involved in the talks.
However, it will ask for further work to be done on the issue of whether insurers can apply a “liquidity premium”, which is key to reducing the cost of the new rules for UK annuity business. The Association of British Insurers said this summer that the UK industry could be forced to raise about £50bn in new capital because of the rules.
Ceiops said the stress tests it endorsed on Friday would include the “adverse scenario” and two others. One would reflect a more severe and prolonged recession and another would see inflation picking up rapidly leading to a steep rise in interest rates.
It said the tests, which will use industry balance sheet data from June this year as a starting point, would focus on the impact on markets and defaults among various kinds of borrowers. It would give no further details.
For the banks’ stress tests, run by the Committee of European Banking Supervisors, the adverse scenario assumed a fall in EU gross domestic product of 5.2 per cent in 2009 and 2.7 per cent in 2010.
The CEA, the European insurance association, said the industry “recognised the purpose of the stress tests, understands the political will behind them and obviously will comply”.
It added that December was not ideal timing as insurers would be engaged in calculating and preparing their end of year numbers.
The tests were expected to happen next year, with a study of new solvency rules’ impact, but were brought forward under pressure from politicians.