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

Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.

Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM

Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Related Articles
EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
EBA Updates Lists of Entities for Use in Capital Calculations under SA
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
MAS Amends Notice on Related Party Transactions of Banks
MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.
ECB Amends Guideline on Euro Short-Term Rate
ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.
EBA Consults on Standards Related to FRTB-SA
EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).
PRA Proposes Rules Related to IRB Approach for Credit Risk
PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.
BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK
The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.
FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks
FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.
OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks
OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.
EU Amends CRR and Securitization Regulation in Response to Pandemic
To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).