Regulator launches 2017 UK insurance stress test

The UK’s Prudential Regulatory Authority (PRA) has sent a request to the country’s largest general insurers to provide information about the impact of a range of stress tests on their projected Own Funds, as well as providing additional information on their sectoral exposures to the UK economy.

The General Insurance Stress Test 2017 includes a set of five severe but conceivable scenarios, namely four natural catastrophe scenarios and one economic downturn scenario consistent with the Banking Stress Test.

The natural catastrophes against which the insurers will be tested include severe windstorms across the South East of the United Kingdom and Northern Europe combined with two floods in the United Kingdom, a magnitude 9 earthquake along the Cascadia subduction zone in the Pacific North West leading to a tsunami as well as a series of three US Hurricanes of category 3 and 4 across the Caribbean, Gulf of Mexico and making landfall in continental United States.

The economic downturn scenario is based on an asset shock and economic downturn and also explicitly considers a reserving deterioration based on increased claims inflation.

The test captures the exposures that will allow the PRA to better understand the impact of potential losses by various sectors of the economy.

Submission of the completed Excel template by the participating firms is requested by 17:00 on Friday 14 July 2017.

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