By Francesco Meglioli - Senior Technical Expert, Financial Stability, MFSA and Rinaldo Busoni - Senior Analyst, Financial Stability, MFSA
The Financial Stability function is pleased to present the “2025 Stress Testing of Maltese Insurance Undertakings – Application of the 2024 EIOPA Insurance Stress Test Narrative to the Maltese Insurance Industry”. This work relates to a stress testing exercise assessing the resilience of Maltese insurance and reinsurance undertakings under a severe but plausible adverse macro-financial scenario.
The exercise builds on the European Insurance and Occupational Pensions Authority (EIOPA) 2024 Insurance Stress Test framework. While the EIOPA adopts a standard bottom-up approach - where insurance undertakings themselves estimate the impact of adverse economic scenarios, the MFSA application follows a fully top-down methodology, relying on internal modelling and prudential data. The scenario considered reflects a re-intensification of geopolitical tensions alongside persistent supply-side pressures.
The publication provides a comprehensive methodological overview of the adverse scenario and the analytical approach applied, outlining the key steps undertaken. This is complemented by a results section presenting the impact of the stress scenario on the Maltese insurance sector, with a breakdown by insurer type (life, non-life, reinsurance, and composite), while ensuring confidentiality. The analysis assesses the implications for balance sheet positions, capital adequacy, and liquidity conditions under the adverse scenario.
Overall, the Maltese insurance sector demonstrates a solid degree of resilience to a severe macro‑financial shock, with capital and liquidity buffers that are, in aggregate, sufficient to absorb substantial market and inflationary pressures. The results highlight some heterogeneity across business lines: life undertakings appear more exposed to adverse market developments associated with prolonged geopolitical stress, while non‑life undertakings are more significantly affected by sustained inflationary pressures arising from extended supply‑chain disruptions.
Despite the severity of the adverse scenario, the majority of participating undertakings are projected to maintain robust capital positions throughout the stress horizon. From a liquidity perspective, the large stock of readily available liquid assets held by Maltese insurers enables most undertakings to absorb the adverse net cash outflows generated by the shocks, while continuing to preserve sound liquidity profiles.
Nonetheless, pockets of vulnerability remain among smaller and more concentrated undertakings, as well as in segments with stronger market exposure. These findings underline the importance of continued supervisory engagement and close monitoring of risk concentrations and liquidity management practices.
This stress testing exercise complements existing risk monitoring tools embedded within the Financial Stability function and is intended to form an integral component of the broader macroprudential monitoring framework going forward.
