Joint Stress Test with the PRA - Instructions

Summary

This is a set of instructions for a joint stress test exercise conducted by the Bermuda Monetary Authority (BMA) together with the UK Prudential Regulation Authority (PRA) in 2019. It applies only to a pre selected sample of nine large Bermuda commercial insurers (Class 4 and Class 3B) with material natural catastrophe exposure in the UK and globally, who have already been notified of their participation. The document sets out the scenarios to be tested, reporting basis, submission format, deadline and governance sign off requirements.

• Scenarios: Insurers must assess impact against five scenarios: an economic deterioration scenario (Scenario 1, involving interest rate falls, credit spread widening and asset value declines) and four liability shock scenarios layered on Scenario 1 covering US hurricanes, a San Andreas earthquake, a Tokyo earthquake and tsunami, and UK windstorm and flood losses (Scenarios 2 to 5).
• Reporting basis: Insurers must report on a Bermuda Economic Balance Sheet (EBS) and Enhanced Capital Requirement (ECR) basis as at 31 December 2018, projected to 31 December 2019 for major changes, with quantified capital and surplus impact under each stress and qualitative only management action commentary.
• Materiality and disclosure: All scenarios must be completed unless immateriality (impact under 5 percent of total gross written premium) can be demonstrated; a breakdown of reinsurers is required where expected recoveries exceed 5 percent of total recoverables.
• Submission: Insurers must complete the standard Excel template (Joint Stress with the PRA Template) and submit it, with the insurer name in the file name and email subject, to riskanalytics@bma.bm by 17:00 on Monday 30 September 2019.
• Governance sign off: On submission, the CEO, CFO or CRO together with the principal representative must confirm satisfaction that the submission provides a reasonable estimate of capital, surplus and ECR after each stress scenario.
• Confidentiality: The BMA will not publish insurer specific information; only aggregate sectoral findings will be published, expected during Q1 2020, jointly coordinated with the PRA.

The exercise is explicitly stated not to be used to set additional capital requirements, but results will feed into ongoing supervisory review and each insurer's supervisory risk score.

Key obligations

• Selected insurers must assess and quantify the impact of Scenarios 1 to 5 on their Bermuda EBS and ECR basis as at 31 December 2018, projected to 31 December 2019
• Insurers must complete all scenarios unless they can demonstrate immateriality (impact under 5 percent of total gross written premium)
• Insurers must include a breakdown of reinsurers where expected recoveries exceed 5 percent of total recoverable amounts
• Insurers must submit the completed Excel template (Joint Stress with the PRA Template) by 17:00 on Monday 30 September 2019 to riskanalytics@bma.bm, with insurer name in the file name and email subject
• The CEO, CFO or CRO and the principal representative must confirm satisfaction with the submission's reasonableness upon submission
• Insurers are encouraged to present their stress test results to the BMA shortly after the formal submission date

Applies to

Bermuda commercial insurers (Class 4 and Class 3B)

Deadlines

• 17:00 on Monday 30 September 2019: Deadline for submission of the completed Excel stress test template to riskanalytics@bma.bm
• Q1 2020: BMA intends to publish aggregate findings from the joint stress test exercise