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UK Insurers Stress-Test Ready: Capital Reserves Strong
24 Nov
Summary
- UK life insurers passed Bank of England stress tests with sufficient capital.
- Private capital deals raise concerns about insurer resilience and policy fulfillment.
- Regulator tested insurers' ability to manage failure of offshore reinsurers.
Bank of England stress tests, conducted on 11 UK life insurers using year-end balance sheet data, have concluded that the sector is well-capitalized to withstand significant economic shocks. These tests demonstrated that all tested entities maintained capital levels exceeding regulatory requirements, indicating a robust starting position for absorbing potential crises.
However, a recent wave of acquisitions by private capital groups, including deals for Pension Insurance Corporation and Just Group, has amplified concerns. Analysts point to potentially aggressive investment and reinsurance strategies employed by these groups, particularly those based in North America, which could increase the sector's vulnerability.
Further scrutiny involved assessing the impact of offshore reinsurer failures, where UK insurers cede pension portfolios. The Bank of England found that UK insurers would remain resilient even if they had to reclaim approximately half of the pension assets transferred offshore, totaling £12.3bn.
