PRA Launches 2019 Stress Test Exercise for Life and General Insurers
PRA has launched the biennial insurance stress test and is asking the largest regulated life and general insurers to provide information about the impact of a range of stress tests on their business. The stress test includes an exploratory exercise in relation to cyber underwriting and climate change. PRA has also published the final scenario specifications, guidelines, instructions, and templates for both life insurance and general insurance stress tests. The deadline for submission for Sections A and B is September 30, 2019 and for submission for Section C is October 31, 2019.
For general insurers, PRA will be coordinating some of the scenarios with the Bermuda Monetary Authority. Many London market insurers are exposed to risks similar to those based in Bermuda; furthermore, UK-based insurers cede a significant proportion of risks to Bermuda-based reinsurers. This exercise will enhance understanding of the interconnectedness between the two jurisdictions in the event of a stressed scenario. The Insurance Stress Test 2019 is split into two broad parts:
- Sections A and B are core stress test scenarios. Section A contains a scenario that reflects a downturn in the economic environment and section B contains a set of severe but conceivable scenarios specific to the business models of life and general insurers.
- Section C is not a stress test; it is an exploratory scenario and instead it is designed to capture information about how different firms are exposed to difficult-to-assess risks—for example, climate change.
The annex to the PRA letter summarizes the main changes to the instructions and templates, following the PRA request for technical input in April 2019. At a sector level, this exercise will allow PRA to assess market resilience and to be better prepared in the event similar scenarios were to occur. At a firm level, the Insurance Stress Test 2019 will inform the PRA view of a firm's risk management systems. PRA will publish a summary of the overall stress test results but no individual firm results will be made public.
Related Links
- News Release
- Letter (PDF)
- Life Insurance: Scenarios, Guidelines, and Instructions (PDF)
- Life Insurance Stress Test: Template (XLSM)
- General Insurance: Scenarios, Guidelines, and Instructions (PDF)
- General Insurance Stress Test: Template (XLSX)
Submission Deadline: September 30, 2019 (Sections A & B); October 31, 2019 (Section C)
Keywords: Europe, UK, Insurance, Life Insurers, General Insurers, Stress Testing, Climate Change Risks, Cyber Risk, Scenarios, Instructions, Guidelines, PRA
Featured Experts
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Nihil Patel
Data scientist; SaaS product designer; credit portfolio analyst and product strategist; portfolio modeler; correlation researcher
Previous Article
OJK Consults on Integrated Reporting Portal for BanksRelated Articles
ECB Finds Banks Unprepared for Pillar 3 Climate Risk Disclosures
The European Central Bank (ECB) published results of the 2022 supervisory assessment of climate-related and environmental risk disclosures among significant institutions (103) and a selected number of less significant institutions (28).
NCUA Assesses Credit Union Exposure to Climate-Related Physical Risks
The National Credit Union Administration (NCUA) released a Research Note that examines the exposure of credit unions to climate-related physical risks. In a related development
EBA Issues Multiple Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) is seeking comments, until July 31, 2023, on the draft Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework.
EC Adopts Regulation on Own Funds, Issues Other Updates
The European Commission adopted Delegated Regulations on own funds and eligible liabilities, on requirements for the internal methodology under the internal default risk model
CDP Platform to Report Plastic-Related Impact, Issues Other Updates
The Carbon Disclosure Project (CDP) announced that its global environmental disclosure platform has enabled reporting on plastic-related impact for nearly 7,000 companies worldwide
IASB to Enhance Reporting of Climate Risks, Proposes IFRS 9 Amendments
The International Accounting Standards Board (IASB) updated its work plan to enhance the reporting of climate-related risks in the financial statements,
BIS Addresses Data Gaps and Macro-Prudential Policy for Climate Risks
The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a brief paper that examines challenges associated with the use of macro-prudential policies to address climate-related financial risks.
FCA Sets Out Business Plan, Launches TechSprint on Greenwashing
The Financial Conduct Authority (FCA) published its business plan for 2023-24. The plan sets out details of the work planned for the next 12 months to achieve better outcomes for consumers and markets
UK Committee Sets Out Recommendations for Next Phase of Open Banking
The Joint Regulatory Oversight Committee (JROC), comprising the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) as co-chairs and the HM Treasury and the Competition and Markets Authority (CMA) as members
ECB Publishes Multiple Regulatory Updates for Banking Institutions
The European Central Bank (ECB) published the results of the 2022 climate risk stress test of the Eurosystem balance sheet,
