Insurers get euro stress tests off to a duff start

Tue Jul 5, 2011 10:35am BST

By George Hay

LONDON, July 5 (Reuters Breakingviews) - A tenth of Europe’s insurance companies have flunked this year’s stress test, though the regulator won’t name them. The tests were based on rules that don’t take force until 2013. But they also weren’t tough enough. European authorities would have been better off doing nothing.

Full view will be published shortly.

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CONTEXT NEWS

-- Ten percent of 129 European insurers would fail to meet new minimum capital requirements in the event of a macroeconomic shock, Europe’s new insurance regulator said on July 4.

-- The European Insurance and Occupational Health Authority

(EIOPA) tested 60 percent of the industry for adverse shocks including a 15 percent drop in equity prices, a 12 percent fall in house prices and a 25 percent drop in commercial real estate values.

-- EIOPA found that under these adverse conditions the tested firms had 275 billion euros more capital than the minimum needed under Solvency II, the new Europe-wide capital standard that will come into force from January 2013. In normal conditions, the solvency surplus was 425 billion euros.

-- EIOPA did not reveal which insurers had failed, but said they required a further 4.4 billion euros of capital.

-- The regulator said that under a separate sovereign stress, 5 percent of insurers tested would fail to meet minimum capital requirements, creating a 3.4 billion euro capital shortfall.

-- The sovereign stress assumed a widening of spreads on European debt since those seen in January. Yields on Greek government debt were assumed to have widened by 255 basis points, with Irish government bond yields widening by 258 basis points.

-- EIOPA press release, 4 July: here

-- Reuters story: Almost 10 pct of European insurers fail stress tests [ID:nL6E7I41M8]

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

-- For previous columns by the author, Reuters customers can click on [HAY/]

(Editing by Peter Thal Larsen and David Evans)

((george.hay@thomsonreuters.com)) Keywords: BREAKINGVIEWS INSURERS/

(C) Reuters 2011. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.

By George Hay

LONDON, July 5 (Reuters Breakingviews) - A tenth of Europe’s insurance companies have flunked this year’s stress test, though the regulator won’t name them. The tests were based on rules that don’t take force until 2013. But they also weren’t tough enough. European authorities would have been better off doing nothing.

Full view will be published shortly.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Get Breakingviews alerts directly to your inbox three times a day. To sign up click here: here

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

CONTEXT NEWS

-- Ten percent of 129 European insurers would fail to meet new minimum capital requirements in the event of a macroeconomic shock, Europe’s new insurance regulator said on July 4.

-- The European Insurance and Occupational Health Authority

(EIOPA) tested 60 percent of the industry for adverse shocks including a 15 percent drop in equity prices, a 12 percent fall in house prices and a 25 percent drop in commercial real estate values.

-- EIOPA found that under these adverse conditions the tested firms had 275 billion euros more capital than the minimum needed under Solvency II, the new Europe-wide capital standard that will come into force from January 2013. In normal conditions, the solvency surplus was 425 billion euros.

-- EIOPA did not reveal which insurers had failed, but said they required a further 4.4 billion euros of capital.

-- The regulator said that under a separate sovereign stress, 5 percent of insurers tested would fail to meet minimum capital requirements, creating a 3.4 billion euro capital shortfall.

-- The sovereign stress assumed a widening of spreads on European debt since those seen in January. Yields on Greek government debt were assumed to have widened by 255 basis points, with Irish government bond yields widening by 258 basis points.

-- EIOPA press release, 4 July: here

-- Reuters story: Almost 10 pct of European insurers fail stress tests [ID:nL6E7I41M8]

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

-- For previous columns by the author, Reuters customers can click on [HAY/]

(Editing by Peter Thal Larsen and David Evans)

((george.hay@thomsonreuters.com)) Keywords: BREAKINGVIEWS INSURERS/