EIOPA has published its June 2017 Financial Stability Report of the (re)insurance and occupational pensions sectors in the European Economic Area (EEA).
Highlights in the standard part of the report include:
• The European macroeconomic environment remains fragile, with some signs of improvement;
• Following Solvency II preparation, some European insurers increased their capital position;
• Insurers’ profitability levels still reveal a relatively stable picture, however, the constant pressure on profitability could eventually lead to a deteriorating position in the near future;
• The demand in the reinsurance sector is still subdued, whereas the reinsurance capacity continues to increase. Alternative capital has continued to grow, albeit at a slower rate in 2015 and 2016;
• In the European occupational pension fund sector: total assets for the euro area increased, the average cover ratios for defined benefit schemes slightly increased compared to 2015 and remain a concern for a number of pension funds.
The thematic article (part II of the report) contains analysis of post-shock capital charges and makes the following recommendations (note, these are the author’s views rather than those of EIOPA):
• The study shows that re-evaluating the SCR after a shock should be part of a sound Enterprise Risk Management approach of risk measurement, risk controls and risk appetite determination.
• Regarding prospective exercises, be it by the firm (e.g. ORSA) or the regulator (e.g. Stress Tests), we strongly recommend to always check the evolution of the solvency capital requirements after the occurrence of a shock.
• The dynamic nature of capital requirements argues for simple multi-period stress tests instead of instantaneous ones.