Aviva, Direct Line and other UK insurers to face tougher stress tests

© Reuters. Aviva, Direct Line and other UK insurers to face tougher stress tests

Proactive Investors - Larger UK insurers, likely to include Aviva PLC (LON:AV), Legal & General Group PLC (LON:LGEN), Admiral Group Plc (LON:ADML) and Direct Line Insurance Group PLC (LON:DLGD), will face Bank of England stress-test similar to those used to evaluate the banking sector.

The first “dynamic” stress test for the sector is planned in 2025 by the BoE's Prudential Regulation Authority to evaluate how the industry would cope with a market-wide crisis.

It will assess the industry’s solvency and liquidity resilience to a specific adverse scenario; as well as assessing the effectiveness of insurers’ risk management and management actions following such a scenario, the BoE said.

"The dynamic nature of the 2025 exercise represents a significant change from previous exercises and will involve simulating a sequential set of adverse events over a short period of time," the BoE said.

In the coming six months the PRA will hold talks and get feedback from the industry and trade bodies to refine the shape of the test, so it can provide more details during the first half of 2024.

There were last insurance sector stress tests, in 2022, where 16 life insurers were invited and 17 general insurers, including Admiral, Ageas, Allianz (ETR:ALVG) AIG (NYSE:AIG), Aviva, AXA, Canada Life, Hiscox (LON:HSX), Just Group (LON:JUSTJ), Legal & General, Lloyds Banking Group (LON:LLOY)'s Scottish Widows, Phoenix Group PLC, Prudential PLC (LON:PRU), Royal London.

Following the test, the BoE said life insurers could be overly optimistic about their ability to sell down assets in a crisis

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