Climate Change Exercise in General Insurance Stress Test (GIST) from the PRA

For the first time, the UK Prudential Regulation Authority (PRA) has included a climate change component in the General Insurance Stress Test (GIST). Larger regulated life and general insurers have until end of October if they choose to respond to this exploratory exercise.

As part of the exercise specified in the GIST, firms are requested to consider the potential impact of climate change on their business, split into quantitative data-driven and qualitative information gathering sections.

Check out our quick Question and Answer section below and read more about the PRA and GIST in our blog.

GIST Questions and Answers

Q. What is the Bank of England’s (BoE) Prudential Regulation Authority (PRA) and General Insurance Stress Test (GIST)? 

A. The Bank of England (BoE) Prudential Regulation Authority (PRA) prudentially regulates and supervises financial services firms. Regulation requires financial firms to hold sufficient capital and have adequate risk controls in place, and the PRA is responsible for supervising and regulating this in the UK for around 1,500 banks, building societies, credit unions, insurers and major investment firms. It releases a General Insurance Stress Test (GIST) for the largest regulated life and general insurers every other year, in the period from July to September.

For the first time this year, the GIST contains a climate change exploratory exercise. 

Q. How is JBA involved? 

A. JBA has worked with the PRA and provided an event footprint for the UK flood elements of the latest GIST, released in April 2019. This event (ID E89526) is included in the report alongside UK flood events provided by other suppliers. Additionally JBA have services available to help clients meet the climate change exercise within the GIST (see below).

You can read the full detail about GIST on the PRA website.

Q. What is involved in the climate change component in GIST?  

A. From our interpretation, there are two parts to the climate change component in GIST:

• Part 1 (quantitative analysis) is designed for firms to start gathering quantitative information on climate change and to allow the PRA to assess exposures and the value of the tools available to insurers.
• Part 2 (qualitative analysis) appears to be focused on how firms are translating broad climate change scenarios into more detailed assumptions to assess financial tangible impacts on their business.

Q. How can JBA help? 

A. JBA has several services that can to help firms meet the climate change component of the GIST:

• Portfolio analysis of present and future climate using our UK Flood Model and UK Climate Change Model
• Single event analysis using our UK Flood Model and UK Climate Change Model
• An event footprint of JBA’s UK flood event included in the GIST (E89526) for present-day and climate change scenario 

We are also able to offer expert guidance on how to extrapolate results out to meet the different PRA climate scenarios.

If you want to learn more about how JBA can help you meet the GIST requirements, please get in touch.