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BoE issues alert to insurers.

 The BoE’s Pruden­tial Reg­u­la­tion Author­ity, which super­vises the sec­tor, put 16 life insurers through a stress test of

Bank of England

credit down­grades and increased longev­ity. In res­ults pub­lished yes­ter­day, it found them resi­li­ent, but said their assump­tions ran the risk of over­con­fid­ence.

Sev­eral com­pan­ies relied on their abil­ity to sell bonds that had been down­graded to junk, with £8bn to £9bn of such assets expec­ted to be off­loaded, the report found. Most assumed this could be done within six to 12 months of the event.
«It is import­ant that, when firms plan for the man­age­ment actions that they could take in stress, they allow for mar­ket liquid­ity and poten­tial stress amp­li­fic­a­tion arising from actions taken by other investors».
An example of insti­tu­tional investors rush­ing for the exit was provided in the UK’s gilts mar­ket crisis last year, triggered by former prime min­is­ter Liz Truss’s ill-fated «mini» Budget, when pen­sion funds struggled to off­load gov­ern­ment debt quickly enough to meet col­lat­eral calls and the BoE was forced to inter­vene.
For gen­eral insurers, includ­ing those within the Lloyd’s of Lon­don mar­ket, the reg­u­lator iden­ti­fied areas for improve­ment in how they quantify losses from so-called sec­ond­ary per­ils — events such as floods that have his­tor­ic­ally been less costly, but are grow­ing in fre­quency.
«Indeed, some entit­ies repor­ted that they have a spe­cific gov­ernance approach to invok­ing this lan­guage and have con­sidered poten­tial costs that may be incurred,» said Gerken.
Par­ti­cipants high­lighted efforts to cre­ate new policy lan­guage to address the chal­lenges.
The Fin­an­cial Times revealed last week that insurers were in dis­cus­sions with the Treas­ury about whether Pool Re, the UK’s ter­ror­ism rein­sur­ance scheme, could be expan­ded to back state-sponsored cyber attacks.
The insurers in the stress test were not named in yes­ter­day’s let­ter, but the lifein­sur­ance units of groups includ­ing Aviva and L&G had been invited to par­ti­cip­ate last year.
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Comments

  1. Natalie24 January 2023 at 10:17

    These kinds of tests are very beneficial as they show the true capabilities of life insurers and can find problems that need addressing.

    ReplyDelete
  2. Jerry24 January 2023 at 10:37

    This right here is worrying “their assump­tions ran the risk of over­con­fid­ence” So many companies think this way, think that they can withstand anything and that’s not true. And this stops you from growing, from preparing for the worst case scenario.

    ReplyDelete

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