10% of European insurers fail stress test: regulator

(FRANKFURT) - About 10 percent of European insurance companies tested do not have enough capital to withstand exceptional economic shocks, the sector regulator said on Monday.

But with a success rate of 90 percent, "overall, the European insurance sector remains robust in the occurrence of major shocks," the European Insurance and Occupational Pensions Authority (EIOPA) said.

The tests examined 221 insurance and re-insurance companies which account for about 60 percent of the overall insurance market in the 27 members of the European Union plus Iceland, Liechtenstein, Norway and Switzerland.

They were based on stricter capital requirements that are to take effect in January 2013 under so-called Solvency II regulation but which have not yet been finalised.

Of the insurance companies tested, "data showed that approximately 10 percent (13) of the participating groups and companies do not meet the MCR (minimum capital requirements) under the adverse scenario," a statement said.

"Eight percent (10) fail to meet the MCR in the inflation scenario," it added, in reference to a hypothetical case in which rising inflation forced central banks to raise interest rates quickly.

Although the exercise looked at 221 insurance and re-insurance groups and companies, the results considered 58 groups and 71 companies because some belonged to a single parent company, EIOPA said.

"The insurance groups and companies who did not meet the MCR threshold show a solvency deficit of EUR4.4 billion ($6.38 billion) if the adverse scenario were to occur and EUR2.5 billion if the inflation scenario were to materialise," the statement said.

The test scenarios included market, credit and insurance-related risks.

EIOPA carried out an additional test to evaluate sovereign bond exposures.

"The results of the shock on sovereign bond yields show that approximately five percent (6) of the participating groups and companies would not meet the MCR," it added.

A major concern at present is that financial institutions could be exposed to heavy losses in the event of a default by peripheral eurozone countries such as Greece, Ireland and Portugal.

But the regulator said the tests were based on hypothetical and severe stress scenarios and were not a forecast of what it expected to happen.

It published aggregate results for the entire market, rather than use a company-by-company test format for banks whose findings are expected sometime this month.

European Insurance and Occupational Pensions Authority (EIOPA)