Dáil Éireann Debate, Friday - 16 September 2016
221. Deputy Pearse Doherty asked the Minister for Finance the analysis his Department or the Central Bank carried out following the EIOPA stress tests in 2014; and the results of this analysis and the follow up regulatory action taken as a result. [24625/16]
View answerThe stated aim of the EIOPA 2014 Stress Test was to test the overall resilience of the European insurance sector and to identify any vulnerabilities.
The Central Bank of Ireland has provided me with the following details of the 2014 Stress Test.
The exercise had two main elements involving two different samples:
i) A Core Stress module primarily focused on Group level undertakings to examine financial resilience based on market stress-scenarios and a number of single-factor insurance stresses.
ii) A Low Yield module run entirely at individual/solo level and focusing specifically on the impact of prolonged low interest rates.
In order to produce representative results for the entire insurance industry for the Core Stress module, EIOPA's requirement was to achieve at least 50% coverage for life and non-life business (in terms of Gross Written Premium). In order to meet the market coverage requirements, 3 Irish participants (one life, one non-life and one composite undertaking) had their results submitted to EIOPA. A further 13 undertakings submitted results for local supervisory purposes. In total, 16 Irish companies (8 life, 6 non-life and 2 composite undertakings) reported their results to the Central Bank for the Core Module.
For the Low-Yield module, 11 companies (4 life, 5 non-life and 2 composite undertakings) participated in the low yield exercise and had their results submitted to EIOPA to meet the relevant market coverage requirement for this exercise (50% Market Coverage in terms of Gross Life Technical Provisions).
The approach taken by EIOPA was to carry out an exercise that focused on impacts and vulnerabilities rather than pass/fail of individual participants. While 100% Solvency Capital Requirement (SCR) cover on a Standard Formula basis was used as a benchmark, it was not a target level of capital and companies did not "fail" if they did not hold this level of capital before or after stresses
For the market stress scenarios, Irish participants found the EU equity market stress more severe than the non-financial corporate bond market stress. This is in line with results from the wider European sample.
The most severe non-life Single Factor Insurance Stress was the provisioning deficiency stress of 3% (participants were asked to calculate the shortfall for all liability claims reserves based on the assumption of a 3% increase in the inflation rate). In this respect, the Irish results were also in line with results of the wider European sample. While longevity and mass lapse stresses were the most severe life stresses across Europe, in Ireland, this depended heavily on the type of business written and no single stress was obviously the most severe.
For the low yield scenario exercise, it was found that the Irish sample was not particular vulnerable to either of the low-yield stresses.
Analysis of the 2014 exercise fed into the Central Bank of Ireland's normal supervisory functions and issues identified in the exercise were used to guide a number of firm specific engagements by them in 2015.
