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 shortfall relative to the minimum capital level required under the EU's proposed Solvency II capital rules, 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 estimated capital shortfall compared with the sector's 425 billion euro surplus before the stress tests are applied demonstrated that the industry is 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 regime the stress tests are modeled on 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 has spurred regulators to scrutinize the industry more closely.
EIOPA's banking counterpart, the European Banking Authority, is due to publish the results of a stress test of European lenders later this month.
EIOPA also said six European insurers would face a capital shortfall of 2.5 billion euros 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, EIOPA's Bernardino said.
(Reporting by Myles Neligan; editing by Paul Hoskins)