Some Finnish insurance companies show weaknesses in stress tests

The European Insurance Supervisory Authority (EIOPA) that has recently published stress test results on the main European insurance companies. EIOPA is an independent advisory body to the European Parliament, the Council of the European Union and the European Commission. Its main responsibility is to support the stability and transparency of the insurance markets, as well to protect insurance customers, pension scheme members and beneficiaries.

The report included 3 sets of Finnish insurance companies controlled or associated closely with our big financial groups – Nordea, Pohjola Bank and Tapiola. These 3 groups account for most of the primary insurance market in Finland.

The stress tests basically examined what would happen to the insurance companies if interest rates rise sharply and if share prices fall rapidly. The stress tests tell supervisors and owners if more share capital is needed to keep the insurance companies solvent.

The report is very long and complex. No names are given of those who failed or did badly in the tests. Only the names of 30 insurance companies that performed the best in the tests are listed. One Swedish insurance company fell into that good category.

Our national supervisor, FIVA, commented that some Finnish insurance companies failed to meet EIOPA’s stress tests, but that there was no cause for concern because the company or companies still have 1 year to adjust their investment portfolios.

However, you can ask the question whether there is really little to be concerned about because these 3 groups account for such a huge share of our insurance market. It could be said that the risks to the insurance companies and their clients are more real than we are led to believe by the supervisors given the present state of the markets. Transparency is always a better thing than hiding behind a veil of secrecy. Why not publish names and stress test results if there is no danger of a panic?