April 15, 2019

PRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019. PRA has also published scenario specifications, guidelines, instructions, and templates for both life insurance and general insurance stress tests. Feedback is being sought on all aspects of this exercise from firms and other industry participants by May 31, 2019. Following consideration of the technical input, PRA intends to issue a formal announcement to request firms’ participation on July 01, 2019 to complete this exercise by September 30, 2019.

General insurers will be most familiar with this exercise, as it represents an evolution of the stress testing exercises conducted in 2015 and 2017. For general insurers, PRA will be running a number of scenarios jointly with the Bermuda Monetary Authority (BMA), reflecting commitment to transparency, supervisory cooperation, and information-sharing by both Authorities, in line with the Insurance Core Principles (ICP) of IAIS. This joint exercise will allow PRA to understand, in more depth, the interdependencies between London Market and Bermuda-based reinsurers. For life insurers, this exercise captures potential risks that were not fully covered under last year’s EIOPA stress test.

Along with these market-wide stress tests, PRA will also be requesting a climate scenario designed to provide additional market impetus in this area and to inform the development of a consistent and effective approach to climate-focused scenario analysis. PRA is specifically requesting feedback and technical inputs on the following aspects:

  • Clarity of the instructions and feasibility of the timetable—specifically whether there are any areas that require further explanation or clarification
  • Any concerns on the availability of the information to complete the outputs required in the template
  • For Scenario 1 ("Downturn in the economic environment"), what are the pros and cons of the two options outlined for the credit downgrade event
  • For general insurers only, any specific comments relating to the joint exercise with BMA

 

Related Links

Comment Due Date: May 31, 2019

Keywords: Europe, UK, Insurance, General Insurers, Life Insurers, Stress Testing, Climate Risks, Scenarios, Instructions, Guidelines, PRA

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