The 2016 exercise was tailored to assess the insurance sector’s vulnerabilities to a combination of market risk adverse scenarios. It was based on a sample of solo insurance undertakings most vulnerable in a persistent low interest rate environment and a double hit scenario where, in addition to the low interest rates, the assets prices are also stressed.
Two scenarios were tested in this exercise i.e. a low-for-long yield scenario and a so-called ‘double-hit’ scenario. The low-for-long yield scenario aims at emulating a situation of entrenched secular stagnation where a lack of long-term investment opportunities and permanently low productivity growth is combined with an extended scarcity of risk free assets which drives down yields at all maturities. The ‘double-hit’ scenario was set-up by EIOPA in cooperation with the ESRB.
Stress tes results
The exercise confirmed the vulnerability of the insurance sector to the low interest rate environment, and to a pronounced reassessment of risk premia.
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The exercise was run in close cooperation with the national supervisory authorities: the NSAs identified and contacted prospective participants in the test.
On 14 March 2016, EIOPA invited the main EU stakeholders associations (Insurance Europe, CRO Forum, AMICE, Actuarial Association of Europe, CFO Forum) to participate in a workshop with industry and actuaries representatives for the 2016 Insurance Stress Test. The objective of this informal consultation was to consult industry about the broad shape of the exercise and the technical specifications, in order to improve the draft reporting templates and to discuss the main methodologies used to analyse and disclose the results of the 2016 Insurance Stress Test.