EIOPA publishes Insurance Stress Test recommendations

In 2021, EIOPA carried out a European-wide stress test in accordance with Article 21(2)(b) of Regulation (EU) No 1094/2010 of 24 November 2010 of the European Parliament and of the Council (EIOPA Regulation).

EIOPA has now published its recommendations:

  • NCAs should consider whether undertakings still reliant on transitional measures are taking concrete actions to reduce their dependency on measures introduced only to smooth the transition from the Solvency I to the Solvency II regime.
  • NCAs should further assess if the exposure to the risks that cause either a large drop in Solvency Capital Requirement (SCR)-ratio or a (near) breach of SCR-ratio is adequately managed.
  • NCAs should verify that undertakings allocate sufficient resources to ensure that their risk frameworks and models are sufficiently flexible to assess those risks that are not reported as part of the Solvency II reporting framework, particularly focusing on their ability to produce and process relevant data.
  • For undertakings that did not apply management actions, even though they were warranted, NCAs should further investigate the reasons for not applying management actions and if these undertakings have sufficient options to apply management actions in case of need.
  • For undertakings that have applied management actions, NCAs should further assess the viability and reported impact of these management actions where the applied actions departed from what was discussed in the pre-validation phase. This applies specifically for undertakings that relied on intra-group support or where there is interconnectedness with the banking sector.
  • NCAs should assess the time it would take for participating undertakings to respond to adverse developments. This entails assessment of:
    • the decision-making processes;
    • the ability to gather the necessary information in a short timeframe;
    • the flexibility and adequacy of the models used by the undertakings to produce the required results.
  • supervisory actions, including on-site inspections, if needed, regarding one of the participants based on the information provided in the validation process.

Harshil Patel