UK Insurers to Stress Test Capital Reserves Against Synchronized Terrorist Attack

By | July 10, 2015

UK regulators have asked property and casualty insurers to stress test their capital reserves against catastrophes, including a synchronized terrorist attack in London, New York and one other major city.

The Prudential Regulation Authority (PRA) published the exercises last week and the results of the tests must provide details of gross and net losses after claiming for reinsurance, according to the document on its website.

Insurers must complete the stress tests, the first in four years, by October as they rush to get their capital requirements models approved before Europe-wide Solvency II rules come into effect next year.

Among the 11 scenarios, insurers have to stress test for a global terrorist attack where two-ton bombs are detonated simultaneously at 3 p.m. near the Lloyd’s of London building and outside New York’s Nasdaq Stock Exchange and a third at peak hour in either Paris, Frankfurt, Hong Kong, Singapore or Sydney.

Other disaster scenarios include testing for two severe European windstorms followed by a severe flood in the south of England or a wind event where three hurricanes the size of Hurricane Katrina or Rita hit in the same year in the U.S.

Insurers also have to test for a geomagnetic storm that wipes out power grids, an economic shock in the euro area, a surge in large motor insurance claims or a supply-chain event where a disaster like the tsunami in Japan prevents companies from doing business.

The Financial Times reported the PRA’s plans earlier.

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