The test is intended to focus on market and credit risks and will be conducted using three scenarios: the first scenario is intended to reflect the developments in the capital markets between September 2008 and September 2009; the second scenario will reflect a more severe and prolonged recession; and the third scenario will reflect a period of rapidly rising rates of inflation and interest rates.
The test is designed to provide EU policymakers with information to help them assess the insurance sector’s resilience to financial shocks and to improve supervision. CEIOPS is planning for the results of the stress tests to be presented to EU ministers during the first quarter of 2010.
Stress tests are not a new experience within the EU. Following the escalation of the financial crisis in 2008, the UK’s insurance industry regulator, the Financial Services Authority, carried out stress testing exercises on the UK’s largest life insurers using an economic scenario based on the downturn experienced by the UK economy in the 1980s. Other EU supervisors, such as BaFin (Germany’s supervisory authority), have also carried out similar stress testing.
Click here to view the CEIOPS press release.
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