34. Some life insurers will require substantial capitalization under the most severe
scenarios. The stress test covered 80 percent of the market. The weaker starting solvency position
of the five life insurers means that applying the stress scenarios on their solvency positions results
in one entity dropping in its solvency position to close to half of the required solvency ratio. For
three of the five insurance companies the solvency ratio drops below the 100 percent requirement
in at least one of the medium term shock scenarios.
35. Search for yield, reflected in increased holdings of lower-quality corporate bonds in
the portfolios of some life insurers, appears to have weakened resilience to spread shocks.
Exposure to the spread risk is significant for at least one large life insurer. The two-year global
shock scenario that includes a spread widening around 260 basis points for lower-rated bonds
effects a reduction of over 130 percent in the solvency ratio of one insurer. Other life insurers are
also affected by this shock, with reductions in their solvency ratio of over 70 percent.
36. The interest sensitivity test shows strong preparedness in only one insurer. A relatively
mild parallel downwards shift of the yield curve by 100 basis points results in capital hits ranging
from 6 percentage points to 59 percentage points for the five life insurers. Sensitivity to non-
parallel interest rate moves (“twist”) shows a more varied picture, with the impact among the life
insurers varying from capital gains of 7 percentage points to a loss of 8 percentage points.
37. The effect of the domestic crisis scenario is minimal, and the liquidity risk does not
seem high for insurers. The shocks on the mortgage portfolios of life and non-life insurers have
basically no effect, with drops in the risk-based capital of less than two percentage points. This is
probably a reflection of the insurers’ reduced exposure to this asset class and also of the
requirement of having a LTV ratio of 80 percent or below on the granted mortgages. Liquidity risk
does not seem high for insurers under current and stressed conditions. Since insurers hold a large
share of their assets in the form of Swiss government bonds, access to liquidity within a few
months, as required in this exercise, was indicated not to be a risk.
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