EIOPA launches first EU-wide climate stress test for insurers

EIOPA today launched its first climate stress test for Institutions for Occupational Retirement Provisions in the European Economic Area, applying a common transition‑risk scenario across defined benefit and defined contribution pension schemes. The exercise, which excludes insurers subject to Article 4 of the IORP Directive, is intended to assess how occupational pensions would cope with a sharp policy‑driven shift to a greener economy.

The 2022 exercise assesses the resilience of IORPs against a climate change scenario developed jointly with the European Systemic Risk Board and the European Central Bank. The scenario simulates a sudden and disorderly transition in climate policies that drives a sharp rise in carbon prices, testing the impact on asset values and funding positions.

EIOPA said the climate stress test covers all EEA countries with material IORP sectors holding more than €500m in assets. Within those markets, the authority requested that national supervisors reach at least 60% coverage of IORPs’ defined benefit assets and at least 50% coverage of defined contribution assets.

According to EIOPA, the final sample exceeded those targets, achieving total coverage of 96.7% of relevant IORP assets. Coverage reached 66.8% for defined benefit schemes and 70.6% for defined contribution schemes.

EIOPA said the exercise is carried out in close cooperation with national competent authorities, which act as the direct contact points for participating IORPs. The authority’s mandate under Article 32 of Regulation (EU) No 1094/2010 requires it to initiate and coordinate Union‑wide assessments of financial institutions’ resilience to adverse market developments, including climate‑related shocks.

The climate stress test builds on methodological work EIOPA has been developing for insurance climate risk exercises. On 27 January 2022, EIOPA published its third paper on methodological principles for insurance stress testing of climate risks, setting out design features for bottom‑up exercises. The paper describes principles that can be used to structure scenarios and data collection to assess insurers’ vulnerability to climate risks, including transition and physical channels.

EIOPA’s IORP climate stress test report, published on 13 December, sets out the technical approach and aggregate findings from the first EU‑wide exercise for the sector. The authority had earlier gathered feedback on draft technical specifications from EU pension stakeholders, including its Occupational Pensions Stakeholder Group, between 9 and 21 February.

The scope of the exercise spans all types of IORPs providing defined benefit and defined contribution schemes in participating member states. EIOPA confirmed that the test is a European‑wide exercise, with IORPs offering both benefit structures included where they fall within the national coverage thresholds.

Insurers that fall under Article 4 of the IORP Directive were explicitly excluded from the 2022 climate stress test scope. EIOPA said the focus of this exercise is on standalone IORPs rather than insurance entities that provide occupational pensions under that article. EIOPA’s report on the 2022 IORP climate stress test marks the first time the authority has applied a dedicated climate transition scenario to occupational pensions across the EEA. Future Union‑wide stress tests for IORPs and insurers are expected to draw on the methodological principles and stakeholder feedback developed through this exercise.

--- Sources: https://www.eiopa.europa.eu/ https://www.eiopa.europa.eu/browse/financial-stability/occupational-pensions-stress-test/climate-stress-test-occupational-pensions-sector-2022_en https://www.eiopa.europa.eu/publications/2022-iorp-climate-stress-test-report_en