UK regulators need to widen stress tests for insurers to show how the whole industry, including themselves, would respond to an event on the scale of the 9/11 attacks, Hiscox Ltd. said.
Unless the Prudential Regulation Authority, or PRA, can show that it and British insurers are able to respond to a major attack promptly and on a massive scale, they risk losing their status as the premier underwriters of big-ticket insurance, Hiscox Chief Executive Officer Bronek Masojada said in a telephone interview on Monday.
Stress testing “needs to be industry-wide, encompassing London market companies, Lloyd’s players like Hiscox, Lloyd’s itself, and the PRA,” he said. “What’s the impact on Hiscox? What’s the impact on Lloyd’s? And what’s the regulator going to do? Are they going to be terrified, or are they going to say that we can carry on taking risks?”
The PRA published plans this month requiring insurers to calculate losses in a hypothetical terrorist attack in London and New York. Masojada said the plans don’t go far enough, because they focus on the financial impact for individual companies.
“If London doesn’t respond, other centers — like Bermuda, like Asian centers — will,” he said.
As part of the stress tests, insurers will provide details of gross and net losses after claiming for reinsurance. They are required to complete the 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.
Hiscox, a Lloyd’s insurer, on Monday reported an 8.4 percent gain in pretax profit for the half year to 135.1 million pounds ($210 million), led by a 59 percent jump in earnings for its consumer business to 59.3 million pounds.
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