The PRA has launched its life insurance stress test for 2025. The exercise will:
- assess sector and firm resilience to severe but plausible adverse scenarios;
- strengthen market understanding and discipline; and
- improve insight into risk management vulnerabilities.
The launch letter says the PRA will be publishing individual firm results in the core scenario as well as aggregate sector results for exploratory scenarios and will discuss the extent of its disclosures with the relevant firms. The 11 firms included in the exercise should submit their results by 16 June.
Nathanael Benjamin spoke separately on the new approach to stress testing banks. He looked at the history of stress tests and spoke of the importance of stress testing during good times as well as bad. He considered how stress testing has evolved over time and how it has informed supervision. Going forwards, for banks, the stress test will have 3 components:
- a financial resilience test ever other year;
- in the intervening years, alternative methods that are less burdensome for banks such as desk-based exercises; and
- continuing with exploratory scenarios but not strictly biennially.
The next challenge is for the BoE/PRA to join the dots between the sets of tests it runs on banks, insurers, CCPs and system-wide to broaden its toolkit and understanding of systemic risks.