NBB Insurance Stress Test 2017 Results of the Low for Long scenario

This presentation is for information purposes only.

TA – Prudential policy & Financial stability

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Outline

► NBB Insurance Stress Test 2017

► Overview results at market level

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NBB Insurance Stress Test 2017 - Principles

► First national insurance stress test

► General principles

Bottom-up

Individual (solo) level

Reference date YE16

Assess impact on balance sheet, own funds and SCR

Instantaneous shocks

No second round effects

No management actions

Two scenarios

NBB: Low for Long scenario

IMF: IMF Adverse scenario

Is not discussed in this presentation

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NBB Insurance Stress Test 2017 - Low for Long 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

Scope

Mandatory: large insurers

Voluntary: all other insurers with a life or workers’ compensation activity

Scenario

Assess impact of a stressed yield curve on balance sheet and solvency

All other parameters (VA, spreads, …) are not stressed

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NBB Insurance Stress Test 2017 - Low for Long scenario

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EUR risk free rate curves (with VA)

Shift 17 (bp) Shift 16 (bp) Basecase (dec. 16) Low for Long oct. 17

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NBB Insurance Stress Test 2017 - Scope Low for Long

► Invited to participate: 36

All insurers with a life or workers’ compensation activity

► Have participated: 25 (-11 insurers [red])

► In scope of market analysis: 19 (-6 insurers [orange])

Company Invited Participated Market

analysis Company Invited Participated

Market

analysis

0014 KBC Verzekeringen Y Y Y 0519 SECUREX AT Y N N

0033 FIDEA Y Y Y 0735 ERGO Insurance Y Y N

0037 Belfius Verzekeringen Y Y Y 0809 CURALIA Y N N

0039 AXA Belgium Y Y Y 0858 Argenta Assuranties Y Y Y

0058 P&V Assurances Y Y Y 0938 Cigna Life Insurance Y N N

0079 AG Insurance Y Y Y 0944 Securex Vie Y Y Y

0096 Baloise Belgium Y Y Y 0952 Contassur Y Y N

0097 Allianz Benelux Y Y Y 0956 North Europe Life Belgium Y Y Y

0124 Alpha Insurance Y N N 1052 Xerius Y Y Y

0129 L'Ardenne Prévoyante Y Y N 1528 SPF Y Y N

0145 Generali Belgium Y Y Y 1530 Integrale Y Y N

0165 ETHIAS DC Y N N 1642 Patronale Life Y N N

0167 Delta Lloyd Life Y Y Y 1644 ABN AMRO Life Capital Y N N

0196 Ethias Y Y Y 1665 Credimo Y Y Y

0320 La Fédérale Pensions Y N N 2168 WHESTIA Y N N

0345 Fédérale Assurance AT Y N N 2539 CPH LIFE Y Y N

0346 Fédérale Assurance Vie Y Y Y 2550 NN Insurance Belgium Y Y Y

0435 Corona Y Y Y 2553 Crelan Insurance Y N N

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NBB Insurance Stress Test 2017 - Scope Low for Long

► Very high coverage ratio of sample (19 companies)

94% of total TP Life are included in the sample

No material impact of exclusions from sample

(YE16 - €m.) Total market All participants (25)

Included in sample (19) Excluded from sample (6)

Total assets 326.650 296.027 91% 13.578 4,2%

Investments 244.861 225.442 92% 8.870 3,6%

Loans & Mortgages 27.452 26.260 96% 782 2,9%

Unit linked 31.777 29.881 94% 1.098 3,5%

Total liabilities 295.628 270.203 91% 12.614 4,3%

TP Non Life 19.652 15.848 81% 28 0,1%

TP Life 212.332 199.552 94% 8.535 4,0%

TP Unit lined 31.205 29.341 94% 1.080 3,5%

GWP 29.221 23.540 81% 877 3,0%

Non Life 13.942 9.676 69% 54 0,4%

Life 15.279 13.864 91% 823 5,4%

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NBB Insurance Stress Test 2017 - 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

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 – December 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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Outline

► NBB Insurance Stress Test 2017

► Overview results at market level

Low for Long

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Low for Long - Result at market level

Market remains well capitalised after LY scenario

Strong initial solvency position…

Solvency surplus: € 11,8 bn

SCR ratio: 179%

No use of the Transitional on Technical Provisions (except for one insurer)

…absorbs the significant impact of the scenario

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DE AT ES EEA FR LU IT BE NL UK

Solvency (including LTG and VA) SCR ratio

MCR ratio(right scale)

EU solvency figures are difficult to

compare due to different application

of LTG measures throughout the EU.

For example many German insurers

make use of the Transitional on TP.

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Low for Long - Result at market level

► Significant impact LY scenario

Results have been adjusted by NBB

Applied cap on LAC DT to net DTL to all results (~ comparability)

Most participants still applied this cap

Decrease in solvency surplus: - € 5,3 bn

decrease in EOF: - € 3,7 bn (-13,8% pre stress EOF)

increase in SCR: + € 1,6 bn (+10,5% pre stress SCR)

► Acceptable post stress situation

Solvency surplus: € 6,5 bn

SCR ratio: 139% (-40%)

SCR ratio: 145% (without cap on LAC DT)

Increase in SCR would be limited to + € 1,0 bn (+6,6% pre stress SCR)

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Low for Long - Change in own funds

Decrease in Quantity

EOF: -13,8% or - € 3,7 bn

Driven by

Drop in Tier 1 (Reconciliation reserve)

Increase in Tier3 (Net DTA on B/S)

Capped to 15% of SCR (tiering loss)

Decrease in Quality

EOF

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stress

Post

stress ∆

T1 88,6% 86,1% -2,5%

T2 9,8% 11,6% +1,8%

T3 1,6% 2,3% +0,7%

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Low for Long - Change in assets

► Decrease in Tier 1 EOF is driven by decrease in eAoL

► Decrease in eAoL: - € 3,4 bn (-13,3%)

Caused by the lower yield curve and duration mismatch

Increase in assets: + € 9,8 bn (+3,3%)

Increase in liabilities: + € 13,2 bn (+4,9%)

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Low for Long - Change in liabilities

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Low for Long - Change in capital requirement

► SCR of P/IM users is more risk sensitive than SF users

► Increase in SCR of SF users is mainly driven by

● An increase of SCR Life underwriting risk (=> SCR Lapse)

● A decrease of the LAC DT

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Contact

► Questions? ist@nbb.be

www.nbb.be/insurancestresstest