NBB Insurance Stress Test Start event

Transcription

1 - Start event NBB - July 6 th 2017 Nicolas COLPAERT - Geoffroy HERBERIGS

2 Agenda Technical Specifications Framework NBB Low for Long IMF FSAP Insurance Stress Test Timeline Process Technical Information Reporting Quantitative & Qualitative reporting templates 2 / 24

3 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 3 / 24

4 Framework NBB stress test framework for insurance - flexibility 4 / 24

5 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 5 / 24

6 - General principles 6 / 24 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

7 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 7 / 24

8 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 20 th July => ist@nbb.be YE 2016 Assets Liabilities TP Life * GWP ** Scenario (x 1.000) Sha re Cum. Sha re Cum. LY IMF AG Ins ,6% 28,6% ,0% 12,0% X X AXA Bel gi um ,2% 43,8% ,8% 25,8% X X KBC ,1% 52,0% ,3% 33,2% X X BELINS ,8% 59,8% ,2% 37,3% X X P&V ,9% 66,6% ,7% 42,0% X X Ethi a s ,9% 72,5% ,5% 50,5% X X Al l i a nz Benel ux ,6% 78,1% ,8% 59,4% X X Ara s ,7% 79,8% ,7% 60,0% X MARKET % % * TP Life (excluding health and index-linked and unit-linked) ** Non-life gross written premium - direct business 8 / 24

9 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 / 24

10 NBB Low for Long - Stressed EUR risk free rate curve (with VA) ,0% 3,5% RFR VA ST 17 VA 3,0% 2,5% Low for Long 2,0% 1,5% 1,0% 0,5% 0,0% ,5% 10 / 24

11 NBB Low for Long - Stressed EUR risk free rate curve 2,0% (VA) 1,5% ST 17 (VA) ,0% ST 17 0,5% 0,0% ,5% 11 / 24

12 NBB Low for Long - ST16 and relevant EUR RFR curves 2,0% ST 16 EIOPA RFR curves (no VA) 1,5% ,0% 0,5% 0,0% ,5% 12 / 24

13 NBB Low for Long - ST17 and relevant EUR RFR curves 2,0% 1,5% ST 17 EIOPA RFR curves (no VA) 1,0% 0,5% 0,0% ,5% 13 / 24

14 NBB Low for Long - ST17 versus ST16 (no VA) 2,0% ,5% ST ,0% ST 17 0,5% 0,0% ,5% 14 / 24

15 NBB Low for Long - Overview (bps) EIOPA ST16 - (VA = 22) 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) 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) 15 / 24

16 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 1 st FSAP mission => early data submission needed - Additional data request (top-down) Credit event (default) of largest banking and nonfinancial corporate counterparties (=> 0.Assets.Details) (bottom-up) Multiyear projections of key variable after the Adverse scenario & questionnaire on management actions after shock 16 / 24

17 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) 17 / 24

18 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 18 / 24

19 IMF Adverse scenario - Shocks 19 / 24 (change compared to the reference date) IMF Adverse scenario Interest rates (parallel shift of the liquid EUR +50bp part of the risk-free rate term structure) 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 bp CQS bp CQS bp Unrated +200bp Mortgage loans -2,0% Currencies EUR/USD -5,7% EUR/GBP 6-9,4% EUR/CZK 6-7,1% Equity Belgium -16.2% Other advanced economies -16.2% Other emerging and developing economies -25.0% Real Estate Belgium -20,0% (commercial and residential) Other countries -15,0%

20 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 20 / 24

21 Timeline Date Activity June 20 th June 23 th 2017 Consultation of stress test package with Assuralia June 30 th 2017 Launch of the July 6 th 2017 Information session at the NBB July 20 th 2017 June 30 th August 25 th 2017 August 25 th 2017 September 15 th 2017 Mid-September October 2017 End December 2017 Q (tentative date) Register as Low for Long participant Provide stress test contact persons Q&A process Early submission of a part of the results of the IMF Adverse scenario Submission of the results of the Low for Long and IMF FSAP stress test Validation and analysis of the results Communication on the Low for Long results Communication on the IMF FSAP stress test results 21 / 24

22 Process - Q&A process Sent Q&A early in the process (=> ist@nbb.be) IMF and NBB stress test File manager in copy Clear reference to documents Only stress test questions Step 1: bilateral discussion Until September 15 th 22 / 24 Step 2: publication Q&A of general relevance Anonymous Possibly update of documents Until August 25 th

23 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? 23 / 24

24 Contact 24 / 24