State Insurance Dept. to check ‘stress tests’
State insurance regulators said last week that they will start reviewing how insurers “stress test” their businesses to ensure they are properly evaluating how changing economic conditions could affect their stability.
In a “circular letter” to all insurers, the state Insurance Department said it would review companies’ testing procedures, including for investment functions, to see how executives analyze the impact of various situations and what actions they take in response.
Most insurers already conduct such financial testing as a routine procedure, but regulators want to examine that because of “the recent turmoil in the financial markets,” the department said in a press release. Property, life, health and capital markets examiners will conduct the reviews, which will look at the impact of changes in interest rates, credit quality, and liquidity, among other things.
“The [Insurance] Department expects every insurer to have scenario stress testing in place as a part of prudent management,” Superintendent Eric Dinallo said in a statement.
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