UK regulators insurance stress test to produce telling results for ILS
Sunday, 07 12 2015, Category: Insurance and Reinsurance, Country: United Kingdom
The UK’s city and financial regulator, the Prudential Regulation Authority unit of the Bank of England, has launched a series of robust stress tests for general insurers which could produce telling and interesting results for reinsurance, ILS and catastrophe bonds.
The PRA is seeking to stress test general insurers capital adequacy, reserves and reinsurance or risk transfer arrangements, with a series of tests designed to create worst case loss scenarios. The tests range from a year with three major hurricane’s to a coordinated multi-city terrorist attack.
As part of the test, insurers will be expected to detail their expected reinsurance recoveries under each scenario as well as the split across reinsurers they use. Any reinsurer where expected recoveries would be more than 2% of the loss should be detailed, which likely means that some ILS players, with their growing line sizes, would be highlighted.