’The dynamic nature of the exercise represents a significant change from previous exercises,’ says regulator
Insurance firms are set to face “dynamic” stress tests in 2025 to ensure the sector can remain resilient in the face of “adverse scenarios”.
In a statement released yesterday (3 October 2023), the Prudential Regulation Authority (PRA) said it would simulate a sequential set of events over a short period of time.
As these tests are carried out, the PRA will asses the sector’s solvency and liquidity resilience as well as the effectiveness of insurers’ risk management and management actions.
“The dynamic nature of the 2025 exercise represents a significant change from previous exercises,” the regulator added.
“[It will] inform the PRA’s supervisory response following a market-wide adverse scenario.”
Regulation
This came following the industry undergoing a regulation shakeup.
Read: In Focus – How will Solvency II reforms affect general insurance?
Read: PRA to consult on new rules to support struggling insurers
Explore more regulation-related content here or discover other news stories here
For example, the FCA’s personal lines pricing rules, which came into force last year (1 January 2022), mean insurers can no longer differentiate on the price charged to homeowners and motorists based on whether they are new customers or renewing their policies.
Meanwhile, the Consumer Duty regulation requires insurance firms to review their products and services against a new standard of fairness, with companies working to measure, analyse and benchmark their performance across a number of different metrics.
And earlier this year (29 June 2023), the PRA published CP12/13 Review of Solvency II: Adapting to the UK insurance market, with the aim of creating a new UK regulatory regime for insurance firms, known as Solvency UK.
To ensure firms are ready to face the new stress tests, the PRA is set to engage with the industry over the next six months, with a view to providing more details of the exercise during the first half of 2024.
This includes providing insurers with participation, design and timeline details.
Once the simulations are complete, results of the exercise will be disclosed at an aggregate industry level.
His career began in 2019, when he joined a local north London newspaper after graduating from the University of Sheffield with a first-class honours degree in journalism.
He took up the position of deputy news editor at Insurance Times in March 2023, before being promoted to his current role in May 2024.View full Profile
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