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Stress Test & Scenario Analysis


Risk management and COVID-19 for insurance and capital markets

Right now you are likely focused on how the COVID-19 pandemic affects your company. How is your solvency ratio affected? What about the forecasting? And what if another catastrophe scenario hits on top of the pandemic?

We would therefore like to inform you that our Scenario Analysis Tool gives you the possibility to analyse adverse effects on your SCR, MCR and Eligible Own Funds. Capabilities include sensitivity analysis, reverse stress, single scenarios and composite scenarios.

The SII Engine team also has consultants who can help you parameterise your SII Engine Scenario Analysis Tool to perform single or multidimensional stress tests and reverse stress to your current asset and liability data. This can be a simple run of a few selected scenarios in half a day/a day or a more extensive range of stress and sensitivity analysis giving insights to the effects of the current volatile and complex situation. An example could be a workshop, like the example to the right –>

Pandemic Workshop Example

Step 1: Estimation of Eligible Own Funds after first round of pandemic. Investments, best estimates and expected future premiums are estimated. The estimate will among others include increased claims, equity stocks changes, yield curve changes, estimated future premiums and tax effects of these.

Step 2: Calculation of SCR, MCR, and solvency ratios based on the portfolio estimated in Step 1.

Step 3: Reverse stress tests to show sensibility to different scenarios based on the portfolio estimated in Step 1. For example: How much should the stock market fall for us to become insolvent? How much should our future claims increase? How much should our counterparties be down-rated?

Step 4: “Baseline” forecast: Based on the portfolio estimated in Step 1, how does our SCR, MCR and Eligible Own Funds forecast look?

Step 5: Scenario forecast: What happens to our forecast under certain scenarios: For example a windstorm, Brexit, a second round of pandemic or actual default of a counterparty.


Reverse Stress Testing

By defining the target e.g. SII ratio, setting the target range e.g. 100% and 150% and the upper and lower bounds, you can use the built-in goal seek functionality to test the company’s sensitivity to market changes, business development changes, claims changes, etc. You will have access to the same range of pre-defined scenarios as the ones used for other scenario analysis.

  • Sensitivity analysis on your Asset portfolio
  • GWP increase
  • Changes to claims incurred
  • Reinsurance Counterparty default
  • Sensitivity to additional windstorms, flood or other CAT risks

Pre-defined Scenarios

The SII Engine Scenario Analysis Tool give you access to a range of pre-defined scenarios:

  • Asset (shocks to bonds, equities, etc. and/or ratings, countries, currency, large loss etc.)
  • Premiums (NL premiums increase/decrease, adding a new LoB, etc.)
  • Reserves (changes to claims – and/or premium provisions, adding a new LoB, etc.)
  • CAT risk (Natural CAT and Man-made CAT)
  • Re-insurance counterparty rating
  • EIOPA model parameters (shocks, correlations, etc.)
  • Yield curve changes