PRA has written a Dear CEO letter to firms participating in the 2019 Insurance Stress Test. The letter covers:
- Covid-19 resilience: tests showed the sector was robust to downside stresses, with the highest uncertainty being around general insurance claims, particularly business interruption;
- general insurers: the test showed the industry is resilient to natural catastrophic risks, and continues to be reliant on significant levels of reinsurance, particularly from Bermuda. PRA conducted an exercise with the Bermudian authorities, which shows also that its reinsurers are resilient. PRA will look further at allowances for risks not captured in standard models, for secondary perils and at data quality. It also wants to look further at the ability to assess cyber-related and sectoral exposures;
- life insurers: again, the stress has been on Covid-19 work, but last year’s exercise has shown how PRA can design its stress testing scenarios;
- climate scenario: this was an exploratory exercise to help BoE and PRA identify where regulators and industry will need to focus to develop climate stress-testing capabilities further;
- the next steps: the next concurrent insurance stress test will take place in 2022; the climate biennial scenario no earlier than mid-2021 and the 2022 tests are likely to include a cyber-scenario.