June 18, 2019

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

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

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