EIOPA publishes methodological principles of insurance stress testing

Written by Adam Cadle

05/03/2020

EIOPA has set out the main methodological elements and principles of and guidelines for an EU-wide stress-test (ST) exercise.

The document will serve as a tool-box to inform and facilitate both the design and execution phases of EIOPA ST exercises, EIOPA said.

“This methodological paper is part of a general enhancement of EIOPA’s approach to stress testing from methodological and operational standpoints,” the body added.

“Conscious of the effort needed to run a bottom-up ST exercise at industry and supervisor level, STs should be used in a proportionate way and focused on relevant risks defined following a risk-based approach and taking into account the cost-benefit of such exercises. Time-wise, a reduction in the frequency of EU-wide STs reflects the EIOPA Board of Supervisors’ decision to go for a 3-year cycle to allow proper follow-up analyses of the ST results and to better develop and follow-up on the potential recommendations issued.”

Between two ST exercises EIOPA will conduct focused sensitivity analyses and assessments of specific exposures through top-down and/or bottom-up approaches, thereby reducing the burden on the industry. From a methodological perspective, EIOPA plans to issue an additional paper on specific ST-related topics such as the assessment of liquidity positions against transition and physical risks stemming from climate change, and potential approaches to multi-period STs.

The methodological principles of insurance stress testing can be accessed here.

Related Articles