PRA publishes general insurance stress test results
The Prudential Regulation Authority has published feedback on its Insurance Stress Test 2022, setting out how UK life and general insurers fared under a series of severe but plausible scenarios. The exercise covered most of the UK general insurance market and tested both sides of the balance sheet, with particular focus on catastrophe risk for non-life carriers and credit, property and longevity stresses for life firms.
Launched in 2022, the PRA’s stress test involved 54 insurers, comprising 16 life insurers, 17 general insurers and 21 Lloyd’s syndicates. For general insurance, the PRA targeted the 17 largest PRA‑regulated carriers alongside 21 large syndicates and the Society of Lloyd’s.
Prudential capital outcomes
Across the sector as a whole, aggregate Solvency Capital Requirement (SCR) coverage remained above 100% under the stress scenarios. The PRA reported that none of the participating entities breached its Minimum Capital Requirement (MCR). Within the scenarios, however, the majority of participating entities saw a material reduction in solvency headroom, with SCR coverage eroding by between 10 and 60 percentage points.
The PRA’s staged design for life insurers produced more granular insights into tail outcomes. At Stage 3 of the test, four firms saw their solvency coverage reduced to at or below their red solvency risk appetite, with one entity breaching 100% SCR coverage. Following the application of an additional longevity shock at Stage 4, five firms were within or beneath their red risk appetite for solvency coverage, and two of these breached 100% SCR coverage.
General insurance and NatCat stresses
For general insurers, the PRA focused on natural catastrophe scenarios and their impact on one‑year solvency coverage. Under these NatCat stresses, the one‑year SCR coverage ratio for general insurers remained above 100%.
The breadth of participation means these NatCat findings apply to a substantial share of the UK non‑life market. The 17 largest PRA‑regulated general insurers and 21 large Lloyd’s syndicates, together with the Society of Lloyd’s, accounted for just under three-quarters of UK general insurance gross written premium. The feedback noted that reinsurance offsets a large proportion of the longevity risk, but the staged results show that additional longevity shocks can still push several firms into or below red solvency risk appetite ranges and, for some, below 100% SCR coverage.
The PRA’s letter, addressed to chief executive officers, sets out these sector‑wide findings and firm‑level observations from IST 2022. The publication of the feedback in January 2023 provides the latest reference point for boards and investment committees as they calibrate risk appetite and capital planning ahead of the next supervisory testing cycle.
