Macroprudential Solvency Stress Testing of the Insurance Sector

Abstract

Over the last decade, stress testing has become a central aspect of the Fund’s bilateral and multilateral surveillance work. Recently, more emphasis has also been placed on the role of insurance for financial stability analysis. This paper reviews the current state of system-wide solvency stress tests for insurance based on a comparative review of national practices and the experiences from Fund’s FSAP program with the aim of providing practical guidelines for the coherent and consistent implementation of such exercises. The paper also offers recommendations on improving the current insurance stress testing approaches and presentation of results.

Keywords: Stress testing, Insurance companies, Macroprudential Policy, Surveillance, insurance, macroprudential surveillance, financial stability analysis, stress testing., underwriting, life insurance, life insurers, insurance activities, reinsurance, policyholders, supervisory authorities, credit risk, non-life insurance, insurance supervisors, cost of capital, insurance products, capital requirements, insurance markets, insurance risk, catastrophes, insurable interest, risk profile, risk management, risk transfer, insurance policies, risk aversion, insurance regulation, mortgage insurance, risk assessment, insurance supervision, risk market, moral hazard, insurance claims, investment products, insu

JEL Classification: F30, G22, G32