Category: Climate insurance · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed 2026-06-10
The PRA climate stress test refers to the Prudential Regulation Authority’s programme of supervisory scenario analysis assessing UK banks’ and insurers’ resilience to climate change, principally through its Supervisory Statement SS 3/19 framework and the Insurance Stress Test (IST) cycle.
Category: Climate insurance Also known as: PRA Insurance Stress Test climate; PRA climate scenario analysis; PRA SS 3/19 stress test Established / Date: SS 3/19 published April 2019; “Dear CEO” letter 1 July 2020 Related concepts: Bank of England climate stress test, Climate stress test insurance, NGFS
The PRA climate stress test is the supervisory mechanism by which the Prudential Regulation Authority — the prudential regulator within the Bank of England — assesses how UK-authorised banks and insurers would withstand defined climate scenarios. It is rooted in SS 3/19, which requires firms to (i) embed climate risk in governance, (ii) integrate climate into risk management, (iii) use scenario analysis, and (iv) disclose under TCFD-aligned frameworks.[1]
The PRA distinguishes between firm-led scenario analysis (a continuous requirement under SS 3/19, evidenced through ORSA and ICAAP) and supervisor-led stress tests (periodic exercises such as the CBES and the Insurance Stress Test). Both feed into the PRA’s prudential supervision and ultimately into Pillar 2A capital add-ons or Solvency II ORSA conclusions where appropriate.
The PRA’s approach is grounded in financial materiality, foreseeability and the need for forward-looking, strategic assessment beyond the standard one-year regulatory horizon.
The PRA’s statutory underpinning is the Financial Services and Markets Act 2000, with the prudential objective at s.2B and the insurance objective at s.2C. SS 3/19 derives its expectations from the Solvency II framework as onshored into UK law and from PRA Fundamental Rules — particularly Rule 5 (effective risk management) and Rule 6 (organisation and governance).[1]
The July 2020 “Dear CEO” letter set expectations that firms should fully embed SS 3/19 by year-end 2021. The PRA’s October 2021 “Climate Change Adaptation Report” took stock of progress and identified continuing gaps, in particular on data, modelling and management information.[2] The PRA Insurance Stress Test 2022 incorporated climate elements; the IST 2025 cycle adopted the NGFS Phase IV scenarios published in November 2023.[3]
The Bank of England CBES, run in 2021-22 with results on 24 May 2022, was a one-off exploratory exercise complementary to the regular IST.[4]
UK general and life insurers responded to SS 3/19 by appointing Senior Manager Function holders with climate accountability, building scenario libraries (commonly using NGFS pathways combined with vendor catastrophe model uplifts), and incorporating climate scenarios into the ORSA. Internal model firms have refined their Solvency II internal model parameters to reflect climate-adjusted catastrophe loads, while standard formula firms apply qualitative adjustments and stress-and-scenario testing.
Lloyd’s managing agents are subject to comparable expectations through the Lloyd’s Capital Coverage Ratio review and the Lloyd’s Minimum Standards. Lloyd’s published its inaugural ESG Report in December 2020 setting out market-wide commitments on coal, oil sands and Arctic energy phase-outs by 2030 from direct investments.
The PRA Insurance Stress Test 2022 feedback (December 2022) noted continued progress but ongoing variability in firm capability, particularly in physical risk modelling for non-life carriers and transition risk modelling for life and annuity providers.
The PRA climate stress test is, for most UK businesses, an indirect influence. Insurers translate stress test outputs into appetite, pricing and capital. UK businesses notice the effect in renewal terms for property, BI, D&O and credit insurance, in coverage for high-hazard locations, and in questions about their own transition planning during the underwriting submission.
For insurance-buying boards, the PRA climate stress test is a useful framing device for risk register and ORSA-equivalent discussions, especially for captives. Captive owners regulated in the UK (or in Guernsey, IoM and Gibraltar) increasingly mirror SS 3/19 expectations in their own governance.
A UK life insurer running an internal model receives PRA feedback after the 2022 Insurance Stress Test indicating that its climate-adjusted credit spread stresses for utilities and oil and gas holdings are insufficiently severe. It recalibrates using NGFS Delayed Transition assumptions, increases its SCR by £180m and reflects the recalibration in its ORSA report. Group D&O renewal is unaffected because the response is documented and PRA dialogue is constructive.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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