The European Insurance and Occupational Pensions Authority (EIOPA) announced details of the planned stress tests last month.
The test is not a 'pass or fail' exercise, but aims to assess vulnerabilities, EIOPA said at the time. It looks at two market risks: a prolonged low yield environment and a "double hit" scenario where low rates are combined with a sudden drop in asset prices.
The first of these is very unlikely, Tobias Buecheler, head of regulatory strategy at Allianz told the Financial Times.
The scenario is based on a drop in the 'ultimate forward rate' (UFR), which is used to assess the value of long-term liabilities, from 4.2% to 2%.
This would be a "freak" situation, Buecheler said, and the test is therefore too extreme.
"Economically you wouldn’t see such a severe drop in the ultimate forward rate," he told the Financial Times.
Allianz is also worried that the European Systemic Risk Board could use the results of the stress test to force the industry to hold more capital, Buecheler said.
EIOPA defended the test in an emailed statement: "Given that underwriting risks are not tested in this exercise, the market risk scenarios are designed to be severe enough as a response to the challenging macroeconomic environment we are currently observing. Such scenarios represent a low probability event. At the same time their likelihood cannot be fully ruled out. By having severe shocks, we can better see the issues requiring particular supervisory attention and response to the potential build-up of systemic risks at the European level."
"To assess the potential systemic impact of adverse scenarios, EIOPA indeed assumes a lower UFR in the prolonged low yields scenario as one of the possible consequences if yields were to remain low for a considerable amount of time. So the focus of the exercise is not on the UFR but on the protracted low yield environment," EIOPA said.