EU Insurance Watchdog Says Test Shows Risk of Low Interest Rates

A number of European insurers may
struggle to meet their promises to policyholders in a long
period of low interest rates, a regulator said following an
industrywide stress test.

About 24 percent of insurers wouldn’t meet their solvency
capital ratio in a Japanese-style low-yield environment
simulated by regulator, the European Insurance and Occupational
Pensions Authority said in a statement today. That could leave
some struggling to meet their obligations in eight to 11 years’
time, the regulator said, without identifying the companies.
Still, the result of the test shows the industry is “in general
sufficiently capitalized,” EIOPA said.

The European Union plans to introduce from 2016 risk-based
capital requirements for insurers. Called Solvency II, the rules
specify how much carriers such as Allianz SE or Axa SA must hold
to meet future obligations and to safeguard customers’ money.
EIOPA has been stress-testing the industry to see how it would
be hurt by a prolonged period of low rates.

The test “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,” Gabriel Bernardino, chairman of EIOPA, said
in the statement.

Insurers, which typically invest the majority of capital in
fixed-income securities, are seeing earnings depleted by years
of record-low interest rates. The European Central Bank has cut
its benchmark rate to a record-low 0.05 percent and began buying
covered bonds to boost inflation and rekindle growth.

About 225 companies from 28 EU countries and Norway were
subjected to the low-yield test, EIOPA said. The regulator
didn’t disclose which companies fell short in the low-yield

To contact the reporter on this story:
Edward Evans in London at

To contact the editors responsible for this story:
Edward Evans at
David Scheer

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EU Insurance Watchdog Says Test Shows Risk of Low Interest Rates
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