Stress Testing for Insurers

Prudential Standards LPS and GPS 110 (Capital Adequacy) have positioned the ICAAP at the centre of the insurer's capital management framework. As part of the ICAAP, insurers are required to undertake stress testing of their risk exposures to evaluate the impacts of exceptional but plausible events. Within an insurance context these techniques include sensitivity analysis, scenario analysis, and reverse stress testing. In this note I discuss how insurers can obtain value from the stress testing exercise