07/04/2011 12:18 pm ET Updated Sep 03, 2011

Nearly 10 Percent Of European Insurers Fail Stress Tests: Regulator

LONDON (Myles Neligan) - Nearly 10 percent of European insurers would need to raise fresh capital in the event of a severe economic shock accompanied by a plunge in share prices, tumbling interest rates and a property market crash, European insurance regulator EIOPA said on Monday.

Thirteen insurers would in that scenario rack up a collective 4.4 billion euro ($6.2 billion) capital shortfall relative to the minimum required under the European Union's proposed Solvency II regime, the watchdog said as it unveiled the results of a stress test aimed at gauging the sector's financial resilience.

EIOPA did not name the companies, but said the small size of the shortfall compared with the sector's 425 billion euro surplus before the stress tests are applied demonstrated the industry was financially robust overall.

"This shows that overall the European insurance industry has a good shock absorber in its capital position," EIOPA chairman Gabriel Bernardino told reporters.

"Now each company will have an analysis of the areas where they are more exposed, and they can take action."

Bernardino said it was "not appropriate" to identify the companies facing a potential capital shortfall, as the Solvency II capital rules the stress tests are based on could change before they are introduced in 2013.

"The take-away is that there isn't going to be a rush to raise equity. The status quo will be maintained," said Investec analyst Kevin Ryan.

Insurers emerged from the 2008 financial crisis in better shape than banks, but a small number of failures in the sector has spurred regulators to scrutinize it more closely for fear a major insurance collapse could endanger the financial system.

EIOPA's banking counterpart, the EBA, will later this month publish the results of a stress test of European lenders which will name the institutions that are found to be financially weak.

EIOPA also said six European insurers would face a collective capital shortfall of 2.5 billion euros in a separate shock scenario involving a surge in sovereign bond yields.

However, the industry's exposure to bonds issued by critically-indebted peripheral euro zone nations at risk of default is "manageable," EIOPA's Bernardino said.

Allianz, Europe's biggest insurer, said its Solvency II capital thresholds were determined by an internal model which was both more accurate and tougher than the approach adopted by EIOPA.

"For all insurers working with internal models, own results will provide a clearer picture than the EIOPA figures," an Allianz spokeswoman said.

The stress tests "confirm the robustness of the European insurance market and its ability to withstand severe stress scenarios," said CEA, the European insurers' lobby group.

($1 = 0.705 Euros)

(Reporting by Myles Neligan; Additional reporting by Arno Schuetze in Frankfurt; Editing by Jon Loades-Carter)

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