"We encourage you to provide early feedback."
- Stefan Claus, Technical Head of Insurance at the PRA
“The Prudential Regulation Authority’s (PRA) aim is for the UK insurance sector to be able to provide financial protection and security to its policyholders in both good and bad times, and to ensure that the sector can contribute to the growth of the economy in a sustainable manner,” the regulator clarified while outlining its approach to next year’s Life Insurance Stress Test (LIST).
This test has three objectives: assess sector and individual firm resilience to severe but plausible events; strengthen market understanding and discipline through individual firm publication; and improve insight into risk management vulnerabilities.
Unlike the PRA’s annual cyclical scenario bank stress test, this will not be used to inform the setting of capital requirements or buffers. The Solvency II framework determines UK insurers’ capital requirements, and firms set their buffers above these requirements based on their risk appetite.
The 2025 LIST will apply to life insurers active in the bulk purchase annuity (BPA) market with the largest annuity portfolios. The PRA highlighted that these insurers play an important economic role by providing certainty of long-term retirement income for millions of policyholders.
Yesterday, the PRA issued letters to firms requesting technical input ahead of the 2025 LIST. Stefan Claus, Technical Head of Insurance at the PRA, said “Our 2024 insurance supervision priorities letter highlighted that the next [LIST] will be in 2025. Today, following engagement with the industry, we have published our approach.”
“Alongside publication of the approach document, we’re requesting technical input, providing an opportunity for insurers to provide feedback on our proposed guidelines and specifications ahead of the formal launch of the LIST in January 2025,” he continued.
This request covers the scenario specification, guidelines, and instructions, alongside quantitative data templates, and the Results & Basis of Preparation (RBP) Report that will support quantitative results. Stefan said, “At this stage, the scenario specification sets out what assumptions the PRA intends to publish, and the quantum of those assumptions will be provided at launch.”
The PRA welcomes feedback on:
1. Clarity of the instructions and completeness of the scenario assumptions to be provided by the PRA,
2. Governance and quality assurance requirements for the stress test submissions as set out in the RBP report.
This request for technical input will close on the 6th September 2024. Feedback should be sent to [email protected], with the firm's name and FRN in the subject of the email.
