November 28 (SeeNews) - Bulgaria's financial regulator said it has hired global consultancy EY to advise it in conducting stress tests of the insurance and reinsurance sector.
The consultant should develop the stress test methodology and organise and carry out stress tests of the Bulgarian insurers and reinsurers not later than December 31, 2016, the Financial Supervisory Commission (FSC) said on its website.
"After receiving the input data and information, the consultant will review the data’s completeness and accuracy using appropriate tests as well as review the calculations made by the insurance and reinsurance undertakings," it added.
The consultant should resolve operational issues that arise in the course of the implementation of the stress tests and should prepare a final individual reports on the conducted stress test of each insurance and reinsurance undertaking and a final report with individual and aggregated results on the results of the stress test.
The final individual reports on the results of the stress test should include the following minimum elements: the undertaking’s financial statistics; solvency position; own funds; analysis of the risk profile; solvency position under the different scenarios; consultant’s comments/views; limitations where applicable.
The final report on the results of the stress test shall include the following minimum elements: scope and objectives; project organization and participants; definition of the stress test; process and key milestones; data quality issues; methodology and assumptions; aggregated results (solvency position, own funds, analysis of the risk profile, solvency position under
the different scenarios); individual results consistently with the final individual reports; consultant’s comments/views and limitations where applicable.
The stress tests will consist of a market test and an insurance test. The market test represents an extreme situation triggered by two events, namely a rapid increase of all sovereign bond yields of the EU countries complemented by a drop in the risk free rate. The insurance test includes four extreme scenarios - earthquake, floods, provisions deficiency stress and life risk. The screening will take June 30, 2016 as reference date.
In May 2015, the European Commission recommended to Bulgaria to review and strengthen banking and non-banking financial sector supervision and improve corporate governance in financial intermediaries.
The move came after in mid-2014, Bulgaria's then third- and fourth-biggest banks were hit by runs on deposits. While First Investment Bank (FIBank) was rescued by the government, Corporate Commercial Bank (Corpbank) collapsed, triggering mounting distrust in the banking system and the central bank's regulatory practices.
In August, the central bank said that the AQR and stress tests of the banking sector showed that the capital adequacy of each bank was above the minimum regulatory requirements, but recommended capital increases for two local lenders, namely FIBank and Investbank.