Though he expressed himself
in more diplomatic terms, Peter Vipond, the Association of British
Insurers’ (ABI) director of financial regulation and taxation, has
effectively told the European Insurance and Occupational Pensions
Authority (EIOPA) to stop wasting insurers’ time.
Vipond was responding to an
announcement by EIOPA of the second Europe-wide stress test for the
insurance sector in the run-up to implementation of the European
Union (EU) Solvency II regulatory regime at the start of
2013.
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“The UK insurance industry is
currently under great pressure to implement an enormously complex
regulatory framework [Solvency II],” said Vipond.
“Rather than demand stress
tests on the basis of a yet-to-be-agreed framework, it would be
better to focus on finalising the proposed rules and helping the
industry put the infrastructure in place to make them work by
2013.”
Vipond continued that the ABI
is also concerned that many insurers could be “stretched” by the
stress test because their technical teams will also be preparing
internal models for use ahead of Solvency II at the same time as
the stress test will run.
The stress test is being
conducted in cooperation with the national supervisory
authorities.
It includes a minimum of half
of insurance companies in each EU state measured by gross premium
income.
The stress test is scheduled
to run until the end of May 2011 with results to be announced in
July.
According to EIOPA, this
stress test is intended to replicate macroeconomic scenarios and
identify and quantify the impact of three different stress
scenarios: baseline, adverse and inflation scenario.
The baseline scenario is
defined as severe stress whereas the adverse scenario includes an
even more severe market deterioration in the main macroeconomic
variables. The inflation scenario assumes an increase in inflation,
which forces central banks to rapidly increase interest
rates.
EIOPA noted that the stress
test is based on assumptions that were applied to the banking
stress test, in particular the assumptions underlying the
macroeconomic adverse scenario provided by the European Central
Bank.
EIOPA added that the definitions of the stress scenarios
have been modified to address the insurance industries’ market
environment.
