Bank of England warns insurers over ability to sell down assets in a crisis

Life insurers could be overly optimistic about their ability to sell down assets in a crisis, the Bank of England has warned.

The BoE’s Prudential Regulation Authority, which supervises the sector, put 16 life insurers through a stress test of credit downgrades and increased longevity. In results published on Monday, it found them resilient, but said their assumptions ran the risk of overconfidence.

Several companies relied on their ability to sell bonds that had been downgraded to junk, with £8bn to £9bn of such assets expected to be offloaded, the report found. Most assumed this could be done within six to 12 months of the event.

“In light of the aggregate finding, this could be optimistic, especially as other investors would also be taking similar actions,” said Charlotte Gerken, the PRA’s executive director for insurance supervision.

Continue reading at the Financial Times

Featured image, Michael C., Public domain, via Wikimedia Commons