PRA sent a letter to CEOs of firms that participated in the General Insurance Stress Test (GIST) exercise for 2017. The letter summarizes the PRA feedback and the key findings of this exercise, along with suggestions about potential areas for improvements that impact underwriting, finance, and risk functions. The Annex to this letter presents the detailed results of GIST 2017.
The letter states that, this year, submissions were of higher quality than in 2015, thus allowing PRA to provide a more detailed feedback. The key findings from GIST 2017 are as follows:
- Resilience. The UK general insurance sector, in aggregate, and regulated firms, at an individual level, are resilient to the scenarios within the regulatory threshold of Solvency II.
- Reinsurance interconnectedness. There is no evidence that the level of interconnectedness, reflected by the concentration to specific reinsurers, has increased. The results indicate that concentration to individual reinsurers has fallen marginally since 2015, with alternative capital remaining an important part of reinsurance panels.
The results will inform supervision, for instance where firms are identified as outliers or have results that appear inconsistent with their stated risk appetite or the output of their internal model. PRA is following up with these firms as part of its normal supervision. The next stress test exercise is anticipated in 2019. Stress testing remains a valuable tool for PRA in pursuing a forward-looking, proportionate, and judgment-based approach to supervision. It also helps the preparedness for when events do occur. For example, it helps in the timely identification of the firms most likely to suffer significant losses as a result of the recent North Atlantic hurricanes.
Related Link: PRA Letter and GIST Results (PDF)
Keywords: Europe, UK, Insurance, Solvency II, Stress Testing, GIST 2017, PRA
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