LONDON Dec 15 Insurers may have to scrap
dividends after a test of their ability to withstand severe
market shocks uncovered a 160 billion euro ($165 billion) hole
in balance sheets, the European Union's insurance watchdog said
The European Insurance and Occupational Pensions Authority
(EIOPA) published anonymised and aggregated results of this
year's stress test of 236 insurers.
The results show national supervisors need to respond with
measures including possible cuts in maximum guaranteed returns
for policyholders, it said.
"The results of this year's EIOPA stress test confirmed the
significant challenges for the European insurance sector
triggered by the current macro-economic environment," EIOPA
Chairman Gabriel Bernardino said in a statement.
EIOPA said it will check how national regulators implement
its recommendations to ensure a "coordinated response to
situations that may pose a threat to the viability of the
supervised entity and, collectively, to the system as a whole".
The stress test, taken every two years, simulates two
extreme, theoretical shocks to see how insurers could cope.
The first scenario focused a prolonged period of low yields
and lack of long-term investment opportunities - an extreme
version of what is already happening in markets, making it
harder for insurers to earn enough to cover policy payouts.
Insurers showed a 100 billion euro hit to balance sheets under
Under a second, "double hit" scenario of prolonged low
interest rates and a plunge in asset prices, the hit rose to 160
EIOPA issued a range of recommendations for national
regulators, such as requiring firms to review or cut guaranteed
returns on some policies, and cancel or defer dividends if a
business model is at risk.
The sample of companies tested included the region's biggest
insurers, as well as small and medium sized firms, covering both
life and general insurance.
The watchdog's 2014 stress tests showed that with prolonged
low interest rates, nearly one in four insurers would not meet
their Solvency Capital Requirement - the regulatory benchmark -
and some could face problems in meeting promises to policy
holders within 8-11 years.
($1 = 0.9647 euros)
(Reporting by Huw Jones)