EU insure watchdog warns of €4.4bn capital shortfall under new solvency rules if equity and property markets crash
Almost one in 10 European insurers would need to raise fresh capital in the event of a severe economic shock, according to Europe's insure watchdog.
The Frankfurt-based regulator, set up in the aftermath of the last financial crisis, warned that 13 insurers across the 27 member states would go bust under new solvency rules if a crash were to occur.
A plunge in share prices, tumbling interest rates, and a property market crash would lead to a €4.4bn (£4bn) shortfall based on the capital required under the EU's proposed Solvency II rules, the European Insurance and Occupational Pensions Authority (EIOPA) said.
EIOPA refused to name the companies, but said the small size of the estimated capital shortfall compared with the sector's €425bn surplus before the stress tests were applied demonstrated that the industry was financially robust overall.
The EIOPA chairman, Gabriel Bernardino, said: "This shows that overall the European insure industry has a good shock absorber in its capital position. 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 firms facing a potential shortfall, as the Solvency II regime could change before it is introduced in 2013.
Insurers emerged from the financial crisis in better shape than banks, but a small number of high-profile failures and government bailouts in the sector have spurred regulators to scrutinise the industry more closely.
Analysts said the UK industry is likely to be well placed to survive another financial crash after showing its resilience in the wake of the Lehman Brothers collapse.
The European Banking Authority is due to publish the results of a stress test of EU lenders this month.
EIOPA also said six European insurers would face a capital shortfall of €2.5bn in a second shock scenario involving a surge in sovereign bond yields.
However, the industry's exposure to bonds issued by critically indebted peripheral eurozone nations is "manageable", Bernardino said.
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