(Re)insurance companies conduct stress and scenario testing for a variety of purposes, such as ad-hoc exercises, regular risk management, and reporting processes. However, these demands placed on companies have increased significantly in recent years, driven by new regulations and the maturing of existing risk-management frameworks. Many companies now require stress and scenario testing (SST) to be performed for numerous different purposes, such as the own risk and solvency assessment (ORSA), preemptive recovery planning, liquidity management, business planning, and operational resilience. SST is also used to examine the potential impacts of sustainability. This paper proposes a robust scenario selection framework that helps to streamline the SST process.

Highlights

• Typical SST exercises which must be regularly performed
• Key elements and considerations when conducting SST
• Step-by-step guide on how to apply the framework
• Sample use cases