The Prudential Regulation Authority (PRA) is planning to increase its focus on how well insurers are managing and measuring their exposure to property or liability risks.
The PRA said the move had been driven by the continued rate reductions and widening of terms and conditions in the London market.
It also follows the PRA’s findings from the general insurance stress test that it carried out on insurers.
As a result of the review, the PRA said insurers needed to create a standard way to access their exposure to a cyber-attack, the PRA has said.
Some 63% of the general insurance market by premium participated in the test.
The 26 largest general insurers, including Lloyd’s syndicates, were asked to run five market-wide stress tests to assess market resilience as well as reliance on reinsurance. The stress tests covered natural and man-made catastrophes.
Insurers were also requested to provide results for a further four scenarios to understand how different firms were assessing complex scenarios that covered a supply chain disturbance, liability stresses, impacts of a solar flare and a serious cyber-attack across multiple firms.
Key findings of the stress test:
- Insurers were resilient against specific market-wide stresses
- The economic scenario results in the largest adverse impact, which arises mainly from a fall in the value of corporate bonds as credit spreads are assumed to widen
- There was a wide range in views on the plausibility of scenarios
- The results from the complex stress tests, for example a liability or cyber-attack, indicate that common terminology and a common framework for the assessment of exposure is required before a wider assessment of firm and sector resilience can be determined on a consistent basis
- No systemic risks or common cause of a market-wide catastrophe were identified through firms’ own defined stresses
The PRA said: “For us, stress testing is one of the ways in which we proactively pursue a forward-looking and judgement based approach to supervision.
“The results of the exercise will help inform the on-going development of future insurance stress test exercises, with the next exercise likely to be in 2017. In addition, the results help inform supervision, for instance where firms are identified as outliers or have results which appear inconsistent with their stated risk-appetite.”
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