- The 2024 Insurance Stress Test conducted by the EIOPA evaluates the resilience of the European insurance industry to adverse economic and geopolitical scenarios. Covering 48 participants from 20 countries, representing approximately 75% of the European Economic Area (EEA) insurance market, the test is both micro-prudential and macro-prudential in nature, analyzing capital adequacy and liquidity impacts. The adverse scenario, developed with the European Systemic Risk Board, simulates heightened geopolitical tensions leading to supply chain disruptions, elevated inflation, interest rate reappraisal, and widespread economic downturn.
- Capital Resilience: The aggregate solvency ratio decreased from 221.8% to 123.3% under stress, improving to 139.9% after management actions. Despite a significant reduction in own funds (40.3%) and an increase in solvency capital requirements (7.4%), all participants maintained sufficient assets to cover liabilities, with transitional measures and proactive management ensuring solvency thresholds were met.
- Liquidity Challenges: Liquidity strains arose primarily from increased surrender outflows, particularly in life insurance, leading insurers to sell assets, especially government bonds and equities, to maintain liquidity. Aggregate liquidity positions declined, but liquid asset holdings, totaling €1.6 trillion post-stress, provided adequate coverage for net cash outflows.
- Reactive Management Actions: Participants employed 95 actions, including capital injections and asset reallocation, to stabilize financial positions. These actions mitigated the severity of solvency and liquidity declines, reflecting enhanced risk management frameworks since prior stress tests.
- Macroprudential Observations: While insurers absorbed the shocks without major systemic spillovers, asset sales equaled 4% of quarterly EEA bond trading volumes, highlighting potential market impacts in real stress scenarios.
