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Bank of England to Conduct ‘Stress Test’ on General Insurers in 2025

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The Bank of England has announced plans to conduct stress tests on general insurers in 2025 in order to assess the health of the sector. These stress tests, which have been implemented since the global financial crisis of 2008, aim to determine whether banks and insurers have sufficient capital and to identify any potential risks within their portfolios. Unlike previous exercises, the 2025 stress test will involve simulating a rapid sequence of adverse events over a short period of time.

The Prudential Regulation Authority (PRA), a division of the Bank of England, will engage with the industry and trade bodies over the next six months to provide more details about the exercise, including participation, design, and timelines. The results of the stress test will be disclosed on an aggregate level, offering transparency to the public.

This move follows the Bank of England’s decision last month to publish insurer-by-insurer results in the 2025 stress test for life insurers. This shift towards greater transparency aligns with current practices in EU bank stress tests and aims to provide a more comprehensive understanding of the individual performance of insurers.

The European Union (EU) is also taking steps to ease insurance capital rules in order to promote increased investment. European lawmakers are seeking to grant the EU insurance watchdog, EIOPA, the authority to publish insurer-by-insurer results in stress tests. EIOPA believes that insurers are robust and mature enough to offer similar levels of transparency as banks. The organization emphasizes the importance of understanding how individual companies navigate stressful situations, particularly in light of the expected easing of capital requirements.

Post-Brexit Britain is also relaxing the Solvency II capital rules inherited from the EU. These rules govern the amount of capital that insurers must hold to protect against insolvency. The easing of these rules aligns with the broader regulatory changes taking place in the UK and the EU.

The Bank of England’s decision to conduct stress tests on general insurers in 2025 demonstrates its commitment to ensuring the stability and resilience of the insurance sector. By assessing the health of insurers and identifying potential risks, regulators aim to protect policyholders and maintain confidence in the industry. The move towards greater transparency in publishing individual results reflects a broader trend towards increased accountability and disclosure within the financial sector.

More detail via Reuters here… ( Image via Reuters )

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