NBS: Insurance sector passes stress test

The insurance sector would remain stable and highly capitalized and its capital adequacy would not be threatened even in the event of extreme and unlikely shocks, as shown by the first stress test of the insurance sector, carried out by the National Bank of Serbia (NBS).

The test aimed to identify the risk exposure of insurance/reinsurance undertakings in Serbia, the NBS reported.

The stress test is a projection of the financial condition in case of unlikely, but possible adverse events resulting from the operation of one or more risk factors. The test comprised three unrelated extreme-case scenarios.

The first of these was the “Less marketable investments” scenario – where loss is due to a reduction in the value of debt securities, shares, real estate and premium receivables. This scenario would have the strongest impact on capital adequacy primarily on account of a drop in the value of real estate and premium receivables.

The second one was the “Reinsurance” scenario – where loss is due to default of the reinsurer/retrocessionaire, which would not have a material impact on the insurance sector, and the third scenario was the “Actuarial” scenario – where loss is due to increased mortality due to a pandemic similar to “Spanish Fever” and insufficient claims provisioning, which would have a more substantial impact on capital adequacy, the NBS reported.

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