BONN, Germany (Reuters) – Europe's 30 biggest insurers will face a compulsory stress test in 2010 to gauge their strength to withstand the financial crisis, a top European insurance supervisor said yesterday.

"We have to look at the danger of contagion in the crisis," said Thomas Steffen, who chairs the EU's CEIOPS committee of national insurance regulators.

"European insurers are stable but the longer the crisis lasts, the greater the impact it will have on insurers," said Steffen, who is also in charge of insurance supervision in Germany at the country's Bafin agency.

"The stress test in 2010 will be based on their 2009 results," Steffen added.

European insurance sector shares jumped by 3.5 percent on the news and were trading up 2.8 percent.

One analyst, who asked not to be identified, said that although "no regulatory attention was good news," insurers were unlikely to have many skeletons in the cupboard.

European policy makers have already demanded stress tests for the region's banks, hard hit by billions of euros of writedowns from the market meltdown.

Some European insurers are already subjected to national stability tests. But Steffen said regulators now planned to extend this to the whole of Europe to measure the threat from the markets crisis to the continent's insurance industry.

Insurers are vulnerable to the global crisis because they are heavily invested in the share and debt markets, which they rely on to pay out to life-insurance and pension customers.

Steffen said insurance supervisors were now working on developing the new tests for next year. Such tests would cover industry heavyweights such as Germany's Allianz, France's AXA, or Italy's Generali.

"Stress tests are sensible instruments that ought to be used prophylactically," said Steffen.