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2017-09-11 10:54:34.0

Insurance Stress Tests in Serbia

In 2017, the National Bank of Serbia, in its role of the insurance sector supervisor, conducted its second insurance stress test in Serbia with a view to continuously monitoring risk exposure of individual insurance/reinsurance undertakings. The stress test is a projection of the financial situation in case of materialisation of extremely damaging events, occurring as a consequence of one or multiple risk factors, the probability of such events occurrence being small, but still existing.

The stress test of the National Bank of Serbia, developed in line with the best supervision practice, by applying the stress test methodology of the European Insurance and Occupational Pensions Authority (EIOPA) and the provisions of Solvency II Directive, covered five interdependent extreme scenarios:

  • “Less marketable investments” scenario – where loss is due to impaired value of real estate and write-off of premium receivables; this scenario would have a major impact on capital adequacy, primarily due to premium receivables write-off, but also because of the impaired value of real estates; 
  • “Retrocession” scenario – where loss is due to retrocessionaire’s default, which would not significantly affect the insurance sector; 
  • “Actuarial” scenario – where loss is due to increased mortality as a consequence of a pandemic and insufficient claims provisions, which would have a relatively moderate impact on capital adequacy;
  • “Natural disaster – earthquake” scenario – where loss is due to catastrophic damage as a consequence of an earthquake, which would have a relatively moderate impact on capital adequacy;
  • “Natural disaster – flood” scenario – where loss is due to catastrophic damage as a consequence of flood, which would have a relatively moderate impact on capital adequacy. 

The results of the conducted stress test suggest that the insurance sector would remain stable and highly capitalised, without jeopardising capital adequacy, even in the event of extreme and highly unlikely shocks.

Insurance Supervision Department