Bank of England releases stress tests for insurers

Insurance firms asked to reveal potential impact of severe events, including a magnitude-9.0 earthquake

Bank of England releases stress tests for insurers


By Louie Bacani

The Bank of England, through the Prudential Regulation Authority (PRA), has asked the largest general insurers in the UK to provide information about the impact of various stress tests on their businesses.
The PRA said the General Insurance Stress Test (GIST) 2017 seeks to assess the potential impact of severe events at the market level for the general insurance sector and to identify which firms would be most impacted by these events.
According to the regulator, this year’s exercise is split into two parts. The first is a defined set of natural catastrophe and economic downturn scenarios, while the second part aims to capture the exposures of general insurers to sectors of the UK economy.
The catastrophes in the first part of the stress tests include severe windstorms and flooding in the UK, a magnitude-9.0 earthquake in the Pacific north west region leading to a tsunami, a magnitude-8.0 earthquake along the San Andres Fault in California followed by a magnitude-7.0 tremor, and a series of US hurricanes of category 3 and 4 across the Caribbean and Gulf of Mexico.
“At a macro level, the exercise will allow the PRA to assess market resilience, to be better prepared in the event similar scenarios were to occur, and to identify the key reinsurer counterparties and jurisdictions to which the UK general insurance sector would be exposed to in those events,” the PRA said in a letter to insurance firms.
“At a firm-specific level, GIST 2017 will inform the internal model review process and the PRA’s view of a firm’s risk management systems; although it will not be used to set capital requirements.”
The regulator said the stress tests in 2015 provided “valuable market and firm specific information.” For 2017, the exercise focuses on fewer stress tests, but requires more detail on the consequential impacts.

Participating insurance firms are required to submit their responses to the PRA by July 14.

Related stories:
Major insurer hits out at stress test proposals
UK general insurers ‘resilient’ to market stresses

Keep up with the latest news and events

Join our mailing list, it’s free!