FSA Tightens Up Insurance Company Tests
Wednesday, July 29, 2009 7:09The FSA has tightened up its stress-testing of insurance firms ever since the start of the year when it was asking companies to make judgements against a 1980s-style recession scenario.
It no longer asks firms to focus on whether they could withstand a specific downturn and demands they assess risks using much broader criteria. It is keen to identify potential weaknesses at an earlier stage than it did so with the banks, amid fears that some insurers could be forced to tap the markets for cash.
Data published on the FSA website reveals that, in January, the watchdog assessed whether the life insurers could withstand a downturn of 15% in property prices in 2009, based on the 1980s downturn that saw a ‘reasonably rapid recovery’.
It also asked firms to factor in a 20% fall in equities, a 50 basis point rise or fall in interest rates.
This was a less stringent test than the one imposed on the banking sector last year, which used a model assuming a 50% plunge in house prices.
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