May 17, 2010 by Canadian Underwriter
British Columbia’s regulator is warning property and casualty insurers about interest rate risk in the existing volatile financial markets and the potential affects on insurers’ assets and liabilities.
Financial Institutions Commission (FICOM) has issued a bulletin advising insurers to review the potential impact to investment assets from interest rate risk.
“For example, P&C insurers may be exposed to interest rate risk from interest rate fluctuations and the potential decline in asset values (e.g. fixed income securities), forcing regulatory capital to be destabilized,” the bulletin says.
FICOM recommends that insurers:
• consider including interest rate risk as a plausible adverse scenario to their next dynamic capital adequacy test, with an interest rate shock of no less than 300 basis points;
• review their exposure due to interest-rate-sensitive products;
• determine their acceptable level or range of interest rate risk sensitivity; and
• review their internal policies or procedures to ensure sound investment and risk management practices are in place to manage their interest rate risks.
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