howard mcsweeney1- Location: Dover
- Registered: 12 Mar 2008
- Posts: 62,352
#1
from the telegraph.
about 10 pc of insurance companies do not have enough capital to withstand a major economic shock.
But with a success rate of 90pc, "overall, the European insurance sector remains robust in the occurrence of major shocks", the European Insurance and Occupational Pensions Authority (EIOPA) said.
The tests examined 221 insurance and re-insurance companies which account for about 60pc of the overall insurance market in the 27 members of the European Union plus Iceland, Liechtenstein, Norway and Switzerland.
They incorporated stricter criteria for capital requirements that are to take effect in January 2013 under so-called Solvency II regulation but which have not yet been finalised.
Of the insurance companies tested, "data showed that approximately 10pc [13] of the participating groups and companies do not meet the MCR [minimum capital requirements] under the adverse scenario," the statement said.
"Eight percent [10] fail to meet the MCR in the inflation scenario," it added in reference to a hypothetical case in which inflation forced central banks to quickly raise their interest rates.
the insurance groups and companies who did not meet the MCR threshold show a solvency deficit of £4.4bn if the adverse scenario were to occur and £2.5bn if the inflation scenario were to materialise," the statement said.
The test scenarios included market, credit and insurance-related risks.
EIOPA carried out an additional test to evaluate sovereign bond exposures, it said.
"The results of the shock on sovereign bond yields show that approximately 5pc [six] of the participating groups and companies would not meet the MCR," it added.
A major concern at present is that financial institutions could be exposed to heavy losses in the event of a default by peripheral eurozone countries such as Greece, Ireland and Portugal.
The regulator underscored that the tests were based on hypothetical and severe stress scenarios and were not a forecast of what it expected to happen.
It published aggregate results for the entire market, rather than use a company-by-company format for banks that are expected sometime this month.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#2
This is one reason why you should get independent financial advice rather than go direct.
The due diligence tests conducted by IFAs into the financial strength of insurance companies reduce the chance of getting a dud. There are no guarantees of course but it increases the odds in your favour.
One example of where going direct did disadvantage people was the Equitable Life saga - their financial strength (or lack of) ruled them out for IFAs as I found when doing checks in the few years running up to their collapse. They employed their own sales force and boasted that they did not pay commission (forgetting the high bonuses paid to their direct sales force!) but nevertheless they did crop up on IFA systems for financial strength and that ruled them out for fee based advice.