Investment management and actuarial functions routinely measure the resilience of their assets and liability models by using stress-testing techniques. However, the current market volatility and challenges in liquidity/possible solvency in the industry are near-unprecedented.

That calls for a complete relook at tools and methods of stress testing used by insurers, superannuation funds and other financial institutions.

It is important to review what the insurance industry did in terms of stress-testing processes during 2019, especially because 2020 brought on the Covid-19 pandemic that is likely to transform practices going forward.

A glimpse into the stress-testing industry practices for insurers reveals key aspects typically emphasised until now (Exhibit 1), with a focus on maintaining business viability over a three-year period.