AEIP publishes its first response to the EIOPA 2019 IORP Stress Test
AEIP would like to provide some preliminary comments on the conclusions reached by EIOPA in its final report on the IORP Stress Test, published on 17 December 2019, as well as general recommendations.
- AEIP appreciates the fact that EIOPA discussed with stakeholders the cash flow analysis and took it into account for the 2019 IORP Stress Test (ST).
- The 2019 ST exercise is seen as a ‘snapshot’ for Pension Funds (PFs), which does not show the potential for market recovery over time.
- The interpretation of the results of the cash-flow analysis (CFA) is straightforward and clear, since the CFA shows the size and timing of cash flows over time and for different scenarios.
- Stress Test results should be interpreted carefully and most importantly they should be linked to macroeconomic indicators, (such as EU GDP) in order to indicate the correct proportionality of the results.
- Due to their existing recovery mechanisms, PFs are well equipped to meet their engagements in the longer term.
- Financing sustainable growth and participating in the Capital Markets Union (CMU) requires a certain risk appetite, so conclusions deriving from the ST should not lead to PFs not participating in the CMU.
- Bearing in mind that the UK and Ireland do not participate in the 2019 EIOPA IORP ST exercise, but also that the Dutch PF sector amounts to approximately 60% of assets, we consider that the results of the 2019 ST report are not representative of the full EU market.
- Further development and incorporation of ESG factors should be done at the stage when methodologies are more developed but also when comparable and scientifically underpinned data is available. Moreover, any further development of ESG factors in the ST should be aligned with the proportionality principle, given the high cost of ESG data.
- Disclosure of names of IORPs participating in the ST 2019 should be avoided.
For the full version of the AEIP first reaction, please see here.
AEIP plans to publish a more detail analysis of EIOPA’s Stress Test report in the beginning of 2020.