Survival of the fittest!

In the past two years, key ECB rates have been rising after more than a decade of central bank policy to stimulate the economy by decreasing interest rates. The current fight of the ECB and other central bankers against inflation fuelled the increase in interest rates across various maturities. However, as of 2024, with decreasing inflation, the market eagerly awaits potential actions by the ECB.

Amid the current volatile interest rate environment and uncertainties surrounding ECB policies, now is the perfect time to assess the adequacy of the standard model Solvency II (SII) interest rate shocks. Is SII fit to survive this new interest rate environment? This is an important question because inadequate interest rate shocks could lead to insufficient capital levels.

To answer this question, we have investigated the adequacy of the SII interest rate shock and explored alternative interest rate models. The detailed approach of our work and results were recently published in our white paper, with below the most relevant conclusions for insurance companies and other financial institutions.