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 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 be preparing
internal models for use ahead of Solvency II at the same time as
when the stress test will run.
The stress-test is being
conducted in cooperation with the national supervisory authorities
and 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.
