Stress testing is an appropriate tool to identify vulnerabilities of the financial system and to assess the potential impact of risks on the stability of the financial system in general and the insurance sector more specifically. Stress testing also helps to identify those undertakings that may pose a risk to the stability of the financial system or the insurance sector. The National Bank of Belgium (NBB) can, after the analysis of the stress test results, issue recommendations to be implemented by the insurance undertakings in order to contribute to the stability of the financial system.

In 2022, the Belgian insurance sector is subject to two stress tests.

The first stress test aims to analyse of the financial resilience of undertakings in the light of systemic cyber risks. Since the Belgian insurance sector is the third largest cyber insurance market in the EU, further insight is required in cyber underwriting risk driven by systemic attacks on policyholders. The impact on the own business processes of the insurance companies is out of scope of the exercise. To this end, the NBB devised three different scenarios:

• A business blackout scenario with a countrywide power outage;
• A systemic ransomware attack on 10% of policyholders;
• A cloud outage of the largest cloud service provider leading to a bursting of the tech bubble.

The scenarios aim to assess possible impacts of affirmative cyber (resulting from explicit cyber coverages) and silent cyber (embedded implicitly in traditional P&C policies). The scenarios consist of Non-Life underwriting stresses, but the cloud outage scenario also contains a downturn of financial markets.

The second scenario “low yield,” assumes a persistent low interest rate environment and combines stressed risk-free rate curve with a new calibration for the SCR interest rate risk as proposed in the Opinion on the 2020 review of Solvency II (EIOPA-20/749) published by EIOPA on the 17 December 2020. All companies wishing to apply for exemption from the compulsory contribution to the provision on flashing lights must participate in the NBB Insurance Stress Test 2022 - Low Yield Scenario.