INSURANCE DIVISION. Stress Testing. Tienie Hamman Actuarial Specialist: Insurance Actuarial Department SAM Workshop 22 November 2012

Transcription

1 Stress Testing Tienie Hamman Actuarial Specialist: Insurance Actuarial Department SAM Wrkshp 22 Nvember 2012

2 What is Stress Testing? Definitin Risk Management technique Evaluate ptential effects f a specified change in risk drivers Usually crrespnding t severe but plausible events Includes: Sensitivity Testing Mre severe sensitivities Scenari Analysis

3 What is Stress Testing? Definitin Sensitivity Testing Usually referred t small changes in single assumptins Often t identify mst imprtant assumptins We will use it t refer t mre severe sensitivities as well Often instantaneus effect cnsidered Market risk example

4 What is Stress Testing? Definitin Scenari Analysis Severe but plausible state f the wrld May be cmplex in nature, e.g. a mild recessin r simpler in nature, e.g. lw interest rates cupled with lw equity returns and grwing inflatin Need t think abut the time hrisn f these scenaris

5 Using Stress Tests Multiple uses Risk Identificatin Risk Measurement Supprt and enhance Capital Management Imprving liquidity management A cmmunicatin tl fr risk, thereby facilitating embedding f ERM Helping define Risk Appetite Identificatin f systemic risks

6 Using Stress Tests Risk Identificatin In terms f the risk universe, can assist with the identificatin f emerging risks This is clearly an area where statistical mdels cannt help us! Highly subjective, and difficult t achieve buy-in A multi-disciplinary team, and creativity, help with this prcess Stress Testing can als help identify risk dependencies previusly unidentified

7 Using Stress Tests Measurement Dependencies which are knwn t exist are ntriusly difficult t measure with any degree f cnfidence scenaris can help Risk measures cming ut f mre rigrus mdels als need t be challenged again stress testing can assist Risks that are difficult t quantify (e.g. Operatinal risk) Risks that are easy t quantify (e.g. market risk) Effects f cntrl breakdwn, management actin, etc

8 Using Stress Tests As a cmmunicatin tl Stress testing mves away frm X t english Having the right peple invlved in identifying and quantifying scenaris helps buy-in It can facilitate a discussin abut mdels amng peple wh aren t actuaries It can als help articulate (and als sensecheck) risk appetite statements

9 Develping Stress Tests Categrisatin

10 Develping Stress Tests Definitin Knwn Risks Sensitivities in risk mdels Interdependency Ripple effects Unknwn Risks Emerging risks framewrk Mnitr trends?

11 Develping Stress Tests Assessing Scenaris Need t cnsider hw precisely the identified scenaris might impact the insurer Initially, useful t think bradly Cnsider bth qualitative and quantitative aspects Ripple effects Management actins

12 Develping Stress Tests Impact measure Need t cnsider ne r mre measures Asset and liability values Level f impaired assets / write-ffs Prfit and Lss Regulatry Cver Ecnmic Capital Liquidity/Cashflw/Funding measures

13 Reverse stress testing gnitset sserts esrever Nt as cmplex as it sunds Nt smething yu need a cmplex mdel fr Really just the cnsideratin f: Hw bad must it be befre ur business mdel is cmprmised? Market risk example Brader than the easily quantifiable risks

14 Mnitring Stress Tests Early Warning Signals Mst peple tend t leave ut the last part f a stress testing exercise identifying early warning signals! These shuld be given as much rigur as the identificatin f the scenaris themselves These shuld als feature in regular reprting, as part f the risk reprting prcesses

15 Gvernance Frmalising Stress Testing As with the ther aspects f an ERM framewrk, gd gvernance shuld apply Ideally a stress testing plicy, but may fall under anther risk management plicy Sme frmalisatin f stress testing apprach, aims, and prcesses and prcedures

16 Grup Stress Testing Key Cnsideratins Fungibility f capital Diversificatin / cncentratin Intergrup transactins Changes in cyclical relatinships Grup management actins assumed? Regulatrs Nn-cntrlling interests Cntagin

17 FSB Stress Testing Key Cnsideratins Is the current apprach still valid? Very much in prgress

18 On the Hrisn Activity fr the next few mnths Finalise stress-testing dcuments, including FSB s internal prcess fr cnducting macr stress tests Cmplete guidance n stress testing fr insurers as well as Grup cnsideratins fr publishing Update n the MER stress test

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