NBB Insurance Stress Test 2017 - Start event
Nicolas COLPAERT - Geoffroy HERBERIGS
NBB - July 6th 2017
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Agenda
Technical Specifications
Framework
NBB Insurance Stress Test 2017
NBB Low for Long
IMF FSAP Insurance Stress Test
Timeline
Process
Technical Information
Reporting
Quantitative & Qualitative reporting templates
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Framework
► NBB stress test framework for insurance
● Communication NBB_2017_06
● Legal basis
● Distinction between
Microprudential stress tests proper to the insurer (ORSA, …)
Micro- or macroprudential stress tests initiated by the Bank
● General principles
Alinement with the EIOPA stress test framework
Yearly stress test(s)
Very flexible design of the stress test
Type of stress test
Type of scenario
Type of risks
Time horizon
Scope …
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Framework
► NBB stress test framework for insurance - flexibility
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NBB Insurance Stress Test 2017
► First national insurance stress test
● Keep it simple but…
● Significant impact of the IMF FSAP
► NBB IST 2017 = NBB + IMF stress test
● Transparent for the participants
● Processes are fully aligned and integrated
● NBB = Low for Long scenario
Based on EIOPA ST 2016 Low for Long
● IMF = IMF Adverse scenario + sensitivities + top-down
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NBB Insurance Stress Test 2017 - General principles
● Bottom-up
● Individual (solo) level
● Reference date YE16
● Assess impact on balance sheet, own funds and SCR
Shocks apply to the entire balance sheet
Look-through principle applies when calculating impact
Identify and explain main drivers of impact
● Instantaneous shocks
Second round effects and projections are part of IMF FSAP Stress Test
● Use (P)IM and USP when approved by NBB at reference date
● Use LTG & Trans. when approved by NBB at reference date
● No recalculation of Transitional on TP after stress
● Use only non-discretionary management actions in place at reference
date
● Updated Circular on LAC DT applies
● SCR simplifications are allowed but conditions apply
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NBB Low for Long - Goal & scenario
Goal
The primary objective is to identify and assess potential vulnerabilities of
the Belgian insurance sector to interest rate risk
Additionally, the results are taken into account when assessing the
possible exemption of an insurer to contribute to the flashing light provision
Identified weaknesses at individual level cannot be neglected
Vulnerabilities at market level can best be addressed at individual level
Scenario
Assess impact of a stressed yield curve on balance sheet and solvency
Also covers asset & liability details (reinvestment risk)
Two stressed risk free rate curves (EUR and GBP)
Decomposition of bond portfolio and TP Life
All other parameters (spreads) are kept constant
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NBB Low for Long - Scope
Scope
Mandatory: KBCV, AXAB, BELINS, Allianz Benelux, AGI, P&V and Ethias
Coverage: 78% of technical provisions Life (excl. health STL and unit-linked)
Voluntary: all other insurers with a life activity
Result is part of the assessment of the exemption of flashing light provisions
Registration is required by 20th July => [email protected]
YE 2016 Assets Liabi l i ties
(x € 1.000) Share Cum. Share Cum. LY IMF
0079 - AG Ins 79.909.805 74.086.559 57.215.039 28,6% 28,6% 1.671.183 12,0% 12,0% X X
0039 - AXA Belgium 50.491.567 45.530.690 30.396.220 15,2% 43,8% 1.929.169 13,8% 25,8% X X
0014 - KBC 37.759.294 34.130.957 16.209.610 8,1% 52,0% 1.021.341 7,3% 33,2% X X
0037 - BELINS 23.182.427 21.105.986 15.586.317 7,8% 59,8% 581.127 4,2% 37,3% X X
0058 - P&V 18.875.462 17.520.741 13.742.263 6,9% 66,6% 648.607 4,7% 42,0% X X
0196 - Ethias 19.464.989 17.778.597 11.725.786 5,9% 72,5% 1.189.351 8,5% 50,5% X X
0097 - Al l ianz Benelux 17.435.485 15.808.617 11.192.408 5,6% 78,1% 1.232.338 8,8% 59,4% X X
0858 - Aras 6.324.368 5.628.938 3.359.973 1,7% 79,8% 93.348 0,7% 60,0% X
MARKET 326.184.440 295.404.492 199.822.949 100% 13.936.952 100%
* TP Life (excluding health and index-linked and unit-linked)
** Non-life gross written premium - direct business
ScenarioTP Li fe * GWP **
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NBB Low for Long - Curves
Stressed risk free rate curves
According to the EIOPA methodology
1. Identify EUR swap curve with the lowest average rate for 4 different maturities
(1, 5, 10 and 20 year) over the last 2 years (07/09/2016)
2. Liquid part of this curve (until year 20) is shocked downwards with 15 bps (incl.
CRA of 10 bps)
3. Illiquid part (after year 20), interest rates are determined using the Smith-Wilson
extrapolation method toward an UFR of 2% (instead of 4,2%)
Similar approach for the GBP
Volatility Adjustment is kept constant (EUR = 13 bps, GBP = 30 bps)
No stressed curves for other currencies => use EIOPA RFR Dec 2016
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NBB Low for Long - Stressed EUR risk free rate curve (with VA)
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
4,0%
2 4 6 81
01
21
41
61
82
02
22
42
62
83
03
23
43
63
84
04
24
44
64
85
05
25
45
65
86
06
26
46
66
87
07
27
47
67
88
08
28
48
68
89
09
29
49
69
81
00
10
21
04
10
61
08
11
01
12
11
41
16
11
81
20
RFR 12.16 VA
ST 17 VA
Low for Long
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NBB Low for Long - Stressed EUR risk free rate curve
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
12.16 (VA)
ST 17 (VA)
12.16
ST 17
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NBB Low for Long - ST16 and relevant EUR RFR curves
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
EIOPA RFR curves (no VA) 12.15
ST 16
07.16
12.16
05.17
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NBB Low for Long - ST17 and relevant EUR RFR curves
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
EIOPA RFR curves (no VA) 12.15
07.16
12.16
05.17
ST 17
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NBB Low for Long - ST17 versus ST16 (no VA)
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
12.15
ST 16
12.16
ST 17
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NBB Low for Long - Overview (bps)
EIOPA ST16 - (VA = 22)
1 2 3 4 5 6 7 8 9 10 11 15 20 25 30 35 40 50 60
BC 6,3 9,1 18,2 31,6 45,2 60,1 74,6 88,7 102,1 114,1 124,6 156,4 174,7 200,4 226,8 249,7 268,7 297,4 317,4
Shift 7,4 5,1 -1,1 -10,2 -18,9 -28,5 -37,6 -46,4 -54,7 -62,1 -68,2 -87,4 -98,9 -118,7 -133,9 -145,5 -154,4 -167,3 -176,0
ST16 13,7 14,2 17,1 21,4 26,3 31,6 37,0 42,3 47,4 52,0 56,4 69,0 75,8 81,7 92,9 104,2 114,3 130,1 141,4
NBB ST17 - (VA = 13)
1 2 3 4 5 6 7 8 9 10 11 15 20 25 30 35 40 50 60
BC -17,2 -13,1 -7,8 0,7 10,6 22,2 34,5 47,1 59,1 70,1 80,1 108,8 124,7 154,4 186,2 214,0 237,1 271,9 296,1
Shift -7,1 -13,0 -17,9 -24,1 -29,8 -35,1 -39,2 -42,5 -44,8 -46,7 -48,2 -52,0 -56,3 -81,5 -101,6 -117,3 -129,6 -147,3 -159,3
ST17 -24,2 -26,1 -25,7 -23,4 -19,2 -12,9 -4,7 4,6 14,3 23,4 31,9 56,8 68,4 72,9 84,6 96,7 107,5 124,6 136,8
ST17 curve is lower than the ST16 curve across all maturities
Shock on the base curve (shift)
is more important in 2017 until year 7
was more important in 2016 as of year 8
Negative yields until year 7 (year 8 without VA)
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IMF FSAP IST - Goal
- Bottom-up
To test the resilience of the Belgian insurance sector to an
adverse macrofinancial scenario
Assess impact and sensitivities of single factor shocks
- Top-down
IMF calculations based on data collected from insurers
Planned for 1st FSAP mission => early data submission needed
- Additional data request
(top-down) Credit event (default) of largest banking and non-
financial corporate counterparties (=> 0.Assets.Details)
(bottom-up) Multiyear projections of key variable after the
Adverse scenario & questionnaire on management actions
after shock
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IMF FSAP IST - Scope
► IMF selection criteria: the sample covers at least 70% of
the market
► Based on the EIOPA 2016 stress test scope
Exclude NN Insurance
ARAS remains in scope (part of a FICO)
► Mandatory: KBCV, AXAB, BELINS, Allianz Benelux,
AGI, P&V, Ethias and ARAS (8)
Reduced scope compared to last year (23)
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IMF Adverse scenario
Adverse macrofinancial scenario, not a Double Hit
Upwards shift in interest rates
Spread increases and haircuts on assets
VA is set at 85 bps for the EUR
No change in VA for other currencies
In line with bank stress test but adjusted to insurance
It simulates a recession driven by:
a sudden increase in global risk aversion,
the reassessment of sovereign risk in the Euro Area,
a credit cycle downturn in emerging market economies,
and a large correction in real estate markets in Belgium
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IMF Adverse scenario - Shocks
(change compared to the reference date) IMF Adverse scenario
Interest rates (parallel shift of the liquid
part of the risk-free rate term structure)
EUR +50bp
USD +100bp
GBP +100bp
CZK +100bp
Sovereign bond spreads Belgium +147bp
Low-yield Euro area countries +50bp
High-yield Euro area countries +200bp
Other EU countries and advanced economies +100bp
Other emerging and developing economies +200bp
Corporate bond spreads CQS 0 +50bp
CQS 1 +80bp
CQS 2 +120bp
CQS 3 +180bp
CQS 4 - 6 +300bp
Unrated +200bp
Mortgage loans -2,0%
Currencies EUR/USD -5,7%
EUR/GBP6 -9,4%
EUR/CZK6 -7,1%
Equity Belgium -16.2%
Other advanced economies -16.2%
Other emerging and developing economies -25.0%
Real Estate
(commercial and residential)
Belgium -20,0%
Other countries -15,0%
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IMF Single factor shocks
Single factor shocks
Completely separate exercise
Assess impact of additional claims on BOF, TP and SCR
Shock on
Longevity
Mortality
Pandemic event
Two NatCat events
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Timeline
Date Activity
June 20th – June 23th 2017 Consultation of stress test package with Assuralia
June 30th 2017 Launch of the NBB Insurance Stress Test 2017
July 6th 2017 Information session at the NBB
July 20th 2017 Register as Low for Long participant
Provide stress test contact persons
June 30th – August 25th 2017 Q&A process
August 25th 2017 Early submission of a part of the results of the IMF Adverse
scenario
September 15th 2017 Submission of the results of the Low for Long and IMF FSAP
stress test
Mid-September – October 2017 Validation and analysis of the results
End December 2017 Communication on the Low for Long results
Q1 2018 (tentative date) Communication on the IMF FSAP stress test results
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Process - Q&A process
► Sent Q&A early in the process (=> [email protected])
● IMF and NBB stress test
● File manager in copy
● Clear reference to documents
● Only stress test questions
► Step 1: bilateral discussion
● Until September 15th
► Step 2: publication
● Q&A of general relevance
● Anonymous
● Possibly update of documents
● Until August 25th
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Process - Validation & communication
► Validation - similar process as last year
● Desk validation
● Meeting with participant (Sept - Oct)
● Additional information requests or resubmissions
► Priority will be given to IMF participants
► Communication
● No individual disclosure
● Anonymized or aggregated data
● Participants cannot disclose or discuss their results
► Seminar?
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Contact
www.nbb.be/insurancestresstest