Almost a quarter of European insurers would struggle to meet promises to policyholders if low interest rates persist overt the long-term.
The finding was revealed by the European Insurance and Occupational Pensions Authority, an EU-wide financial regulator, after stress tests were conducted with insurers across the continent.
According to Eiopa, some 24 per cent insurers could fail to meet their “Solvency Capital Requirement” in the event of a “Japanese-like” spell of persistently low interest rates. The regulator says a continuation of the current low-yield environment could see some insurers having problems meeting promises to policyholders in 8-11 years’ time.
The SCR represents the capital to be held in reserve by insurers to ensure they will be able to – with a probability of 99.5 per cent – meet their obligations to policyholders and beneficiaries within 12 months.
Eiopa chairman Gabriel Bernardinho says: “Eiopa’s stress test 2014 was a truly preventive supervisory tool. It gave EU supervisors an updated picture of the undertakings preparedness to comply with the upcoming Solvency II capital requirements and by applying a set of rigorous and severe stresses indicated to us the areas where undertakings are most vulnerable.
“Eiopa’s recommendations will ensure that the vulnerabilities identified are addressed and that follow-up actions by NSAs will be taken in a consistent way.”