Insurance sector 'robust' but thirteen companies fail stress test

One in ten insurance companies do not have enough capital in the event of a new financial shock, according to industry-wide stress tests.

Lloyds of London insurance market: despite the number of insurers failing the test, the EIOPA said the results showed the insurance market was 'robust'.

Thirteen unnamed European insurers would be forced to raise a combined total of €4.4bn (£4bn) in new capital if the world were hit by a new crisis based on the results of the stress tests conducted by the European Insurance and Occupational Pensions Authority (EIOPA).

The new capital would be required largely as a result of a fall in the value of equity and bond portfolios held by the insurers to meet their liabilities.

Despite the number of insurers failing the test, the EIOPA said the results showed the insurance market was "robust".

As of the end of last year, the 129 businesses taking part in the tests had a solvency surplus of €425bn to enable them to meet claims, but when the stress test was applied this dropped by €150bn to €275bn.

An alternative scenario in modelling the effect of higher inflation, concluded that the industry's surplus would be reduced by €58bn.

"The results of this stress test indicate that overall the European insurance market is well prepared for potential future shocks as tested in this exercise," said the EIOPA.

The tests were the second time the European insurance industry has been tested and come ahead of the expected publication this month of similar figures for the banking sector.

The European Banking Authority is currently in the process of compiling the results of tests conducted on the 91 largest banking groups in the European Union. German, Greek and Spanish bank are among those thought likely to have failed.