Appendix 1 – Specifications for Stress and Scenario Tests
| No: 202010000202 | Date(g): 2/12/2020 | Date(h): 17/4/1442 |
| Stress Tests | ||
| Risk | Sub risk | Change in solvency |
| Market | Interest rate | A 2% up and down stress on interest rate sensitive assets and liabilities; downward stress is subject to a floor of 0% |
| Equity | Reduction in of equity values : 50% decrease in equities listed on Tadawal or equities listed in OECD countries 60% decrease in Other equities (including those listed on Nomu and unlisted equities) | |
| Property | A decrease of 25 % in the value of investments in real estate, taking account of all direct and indirect exposures to property prices. | |
| Currency | The maximum capital requirement of the following: scenario upward shock is an instantaneous rise in the value of 25% of the currency C against the local currency. The scenario downward shock is an instantaneous fall of 25% in the value of the currency C against the local currency | |
| Concentration | The scope of this risk sub-module extends to assets considered under the equity risk and interest rate risk, and excludes assets covered under the counterparty default risk; stress applies to the exposure value in each category in excess of the threshold; property assets excluded due to current regulatory limits and hence lack of materiality; exclude Government bonds from the scope of this stress | |
| Counterparty Default | Type 1: Reinsurers & Banks | Captures the change in solvency ratio due to default of counterparties, including reinsurers, banks, brokers, agents, TPAs, policyholders, etc. |
| Type 2: Other Counterparties | ||
| Life Underwriting | Mortality | Increase of 15% in mortality rates for each age and each policy where the payment of benefits (either lump sum or multiple payments) is contingent on mortality risk |
| Lapse | 5 percentage point yearly increase/decrease (the decrease has a floor of 0%) in lapse rate over that assumed | |
| Expenses | Increase in future inflation rate compared to best estimate assumption, where the Inflation Rate increases by 1 percentage point per annum over that assumed | |
| Non life Underwriting | Premium Risk | Increase in the projected net loss ratio, with low volatility lines of business experiencing 10% percentage points increase and high volatility lines experiencing 20% percentage points increase |
| Reserves Risk | Short fall in the net reserves, with short tail lines experiencing 10% shortfall and long tail lines experiencing 20% shortfall | |
| Scenario analysis | |||
| Scenario title | Scenario description | ||
| Health Pandemic | Health Insurance: | ||
| 2% of insureds are infected, of which | |||
| - 10% of insureds require Hospitalization | |||
| - 30% of insureds requiring Testing and Physician | |||
| Consultation | |||
| 25% of insureds get vaccinated | |||
| Protection & Savings Insurance: | |||
| 0.06% of insureds die (where policy terms do not exclude death due to pandemic) | |||
| Natural CAT - Flood, hail etc. | Cloudbursts over Jeddah city causing flooding affecting property and motor vehicles | ||
| Manmade CAT - Energy | Explosion and Fire in the oil refineries in the company's largest concentration of energy gross risk exposures (e.g. Ras Tanura) covered under a treaty (excluding facultative risks); consider both onshore and offshore exposures for identifying the largest concentration | ||
| Manmade CAT - Property | Consider a fire results in damage to the largest gross single property risk covered under a reinsurance treaty (excluding facultative risks) and in case if Health and P&S coverages apply to the same affected property, then there are 5% deaths and 25% injuries requiring hospital treatment | ||
| Manmade CAT - Motor Liability | Consider a major collision between your insured car and a passenger coach permanently disabling 5 passengers on board the coach. Assume coach passengers are European football league players travelling to a football match in Saudi Arabia; the football match gets cancelled as a result | ||
| Manmade CAT - Marine | A collision between an oil tanker and a cruise ship causing 50 deaths and 500 seriously injured people; the oil tanker is insured by your insurance company and is held responsible for the collision; all passengers of cruise ship are US citizens, so legal proceedings are held in US courts; the claims are in respect of marine hull and marine liability, including removal of wreckage and pollution | ||
| Manmade CAT - Aviation | Assume a collision of two passenger aircraft with full occupancy over Riyadh airport. One aircraft belongs to Saudi Airlines and the other one belongs to Fly Nas. The collision causes 500 deaths (350 Saudia + 150 Fly Nas) and causes closure of Riyadh Airport for a number of days. The pilot of the aircraft insured by your company is held responsible for the accident. | ||
| Operational-cum-Cyber risk | Your insurance company's systems get attacked by a ransomware (e.g. WannaCry, Petya) by international hackers from outside the Kingdom, causing all systems to come to a halt and policyholder data to be accessed illegally. This happens during the peak of renewal period (e.g., in December). The systems remain down for two weeks, leading to loss of renewals/new business. Eventually, the systems get restored after payment of ransom. | ||
| Global recession | Low economic activity leading to lower oil demand, causing the oil price to drop, many government/private projects to stall, economic activities to slow down causing recession, mas exodus of expatriates from Saudi Arabia, liquidity severely affected, policyholders pursue claims vehemently, fraud activities increase, all affecting the revenue and claims of insurance companies | ||