First stress test of insurance sector finished

Insurance Agency of Republic of Srpska, in accordance with its function as insurance sector supervisor, has at the end of 2021 performed first stress test of insurance companies and sector as a whole, which included three mutually independent and extreme scenarios: drop in value of certain categories of assets, loss due to default of other contractual party-reinsurer and loss due to mortality increase in case of pandemic and insufficiency of claims reserves.

Stress test has been developed in accordance with recommended supervisory praxis, and through adaptation of European Insurance and Occupational Pensions Authority (EIOPA) stress test metodology.

The goal of performed stress test was the assessment of vulnerability of insurance companies and sector as a whole to unfavourable market scenarios, which would directly impact financial stability. Additional goal was raising the awareness in insurance companies about real market risks, which can have negative impact on their solvency position.

Results of the stress test indicate that individual unfavourable scenarios, when constructed on realistic base, would not threaten finacial stability of insurance sector, without prejudice to the fact that individual companies would react differently in case of realization of some of extreme scenarios.