Europe’s insurance and pensions regulator is turning to external experts to come up with ideas and research to help it tackle a range of questions about topics such as investment allocations and liquidity stress testing.

The European Insurance and Occupational Pensions Authority (EIOPA) announced the call for research proposals on Monday, saying it was aimed at addressing open questions related to five topics with a special emphasis on policy angles.

The Frankfurt-based authority said: “The ongoing policy and regulatory debates related to the European financial system have been increasingly focused on beyond banking topics including insurance and pension sectors.

“Many questions which need to be addressed require both appropriate theoretical foundations as well as deep empirical analysis,” it said.

The topics for which it wants research proposals are:

  • Investment allocations of insurers and pension funds;
  • Liquidity stress testing in the insurance sector;
  • Early warning systems in insurance;
  • Systemic relevance of insurance sector and its interlinkages with financial and real sectors;
  • Economic valuation of insurers’ liabilities; best estimate and risk margin.

A first

A spokeswoman for EIOPA told IPE this was the first time the regulator had launched such a call, and that it was a response to growing importance of insurance and pension sectors in the overall financial system.

“This growing importance reinforces the need to fully develop a both theoretical and empirical foundation for risk assessment methodologies to be used for the sectors,” she said.

The authority was taking this new step, she said, “in order to leverage the expertise and capacity of external researchers to further enhance a methodological framework available in EIOPA to be able to timely and properly monitor and assess all risks in the insurance and pension sector and address relevant pending research questions”.

While the global research community did a lot of research – both theoretical and empirical – in the area of banking, she said significantly less had been done on insurance and pensions.

“We see many topics where more theoretical foundations could be developed to address all ongoing and emerging issues,” she said, adding that this was particularly true for the area of financial stability where micro and macro topics came together and broad expertise covering finance and economics was needed.  

All interested researchers with a solid academic background currently working for academic institutions or public authorities are being invited to participate, with each research team having to consist of at least one expert from EIOPA.

The deadline for proposals is 15 December.

In its recently-published global financial stability report, the International Monetary Fund (IMF) warned that lower-for-longer yields may prompt institutional investors to seek riskier and more illiquid investments to reach targeted returns.

“This increased risk-taking may lead to a further buildup of vulnerabilities among investment funds, pension funds, and life insurers,” it said.

Low yields promoted greater portfolio similarities among investment funds, the IMF wrote, adding that this may amplify market sell-offs if there were an adverse shock.

“The need to satisfy contingent calls arising from pension funds’ illiquid investments could constrain the traditional role they play in stabilising markets during periods of stress,” it said.