Insurance stress test results must be put into context and considered beyond the headlines, says KPMG

Insurance stress test results must be put into co...

In response to the latest European Insurance and Occupational Pensions Authority (EIOPA) insurance stress test results, KPMG has called for the market to step-back and reflect on the results.

Also on

  • Overall, the insurance sector is sufficiently capitalised, with top 30 insurers demonstrating strong capital levels.
  • However smaller, less diversified groups more vulnerable to stress scenarios.
  • Results confirm that life insurers remain exposed to the low yield environment.

In response to the latest European Insurance and Occupational Pensions Authority (EIOPA) insurance stress test results, published on 30th November, KPMG has called for the market to step-back and reflect on the results.

The exercise addressed both adverse market and insurance industry scenarios. A separate exercise was also conducted, looking at the impact on life insurers, who are likely to be affected by either an elongated period of low interest rates or of a sudden reversal in interest rates. 

Janine Hawes, insurance director at KPMG said, “The local market coverage requirement has resulted in very different sizes of insurers participating in the exercise.”

Coverage within the three largest insurance markets – UK, Germany and France – was in the order of 50 – 60% but included few participants, whereas some of the smaller European insurance markets had coverage of nearer 100% with much smaller firms involved. 

Janine added, “EIOPA’s comments about the percentage of companies falling below the Solvency II solvency capital requirement (SCR) needs to be taken in this context. It does not mean that there is a systemic issue for the European insurance sector as a whole.

“Unlike the European Banking Authority’s stress tests where individual results were published, the EIOPA approach means headline figures are reported, which can be misleading if they are not put into context. For example, the headline that 14% of insurers would not have met their SCR capital requirement at the end of 2013, masks the fact that only one of the top 30 European insurers is in this position. Over 60% of the top 30 had capital of over 150% of their SCR.”

Peter Ott, insurance partner at KPMG said, “It is worth noting that the SCR is itself based on a 1 in 200 year stress event, so the fact that the extreme events tested could result in the SCR not being covered does not mean that policyholders would suffer. Even under these conditions, more than half of the top 30 firms would be able to meet both their insurance liabilities and the capital requirement.

“The results also confirm the impact of the low yield environment, which has been recognised as a concern for some time. However, they also show that insurers are generally able to cope with these challenges, taking around a decade for some insurers to potentially be unable to meet all policyholder payments. This would allow time for most insurers to respond to the new norm and develop action plans to reduce any impact to the customer. Insurers need to address both this risk and their plans within their own risk and solvency assessment (ORSA).

“Insurers that did not participate in the study should consider the potential impact on their own businesses. As the primary objective of Solvency II is to protect insurers, there is little in here to suggest that the insurance industry will not be able to meet policyholder claims when Solvency II goes live.”

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For further information please contact:

Simon Chan, PR Assistant Manager

T: +44 (0)207 694 2024

M: +44 (0)7747 564 737


KPMG Press Office: +44 (0)20 7694 8773


About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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