Life insurers clear stress tests - BoE

(Sharecast News) - British life insurers could withstand severe market stress, the Bank of England confirmed on Monday, following a review of the sector's financial resilience. Stress testing is used by the central bank's Prudential Regulation Authority (PRA) to assess the financial resilience of various sectors.

A third life insurance stress test (LIST) was carried out earlier this year, and on Monday the BoE confirmed that the 11 participating UK insurers were well-placed to withstand severe financial shocks.

These include a decline in risk-free interest rates, falls in equities and property prices and a rise in defaults and downgrades.

Aviva, Canada Life, Just Group, Legal & General, Phoenix Life, Rothesay Life, Scottish Widows - part of Lloyds Banking Group - Prudential Assurance Company and Pension Insurance Corporation (PIC) all participated in the LIST 2025.

The findings were based on analysis of the firms' balance sheets as at 31 December 2024.

Just Group's Partnership Life Assurance, M&G's Prudential Assurance and Phoenix Life had the lowest capital positions, according to the analysis.

Rothesay, PIC and Aviva International Insurance had the strongest performance.

The BoE found that in its core financial stress scenario - designed to be "severe but plausible" - all 11 experienced an aggregate £8.6bn reduction in capital surplus above regulatory requirements, with £12.9bn of assets downgraded to below sub-investment grade.

"Despite this deterioration, participating firms maintained sufficient capital resources," the BoE noted. "All firms continue to meet their regulatory capital requirements, underscoring the sector's robust starting position and ability absorb significant shocks of the kind tested in the exercise."

In a statement to investors, Phoenix said it was "pleased to report that the LIST 2025 results demonstrate the group's robust capital position and the effectiveness of its risk management framework".