Office of Insurance Commission (OIC), Thailand's regulator, has explained the framework for conducting the OIC Stress Test in 2025 for life and non-life insurance businesses to assess the durability of the insurance system under simulated risk scenarios, according to OIC assistant secretary-general, regulatory standards development division, Ayusri Khambanlue.
The OIC Stress Test is a top-down scenario test to analyse impacts on the overall insurance system, especially those that may affect financial stability and cause systemic risks. The test is also integrated with the Bank of Thailand and the Securities and Exchange Commission to comprehensively assess the risks of the Thai financial sector.
In 2025, the test will focus on identifying risk factors that cover both insurance and economic aspects, considering the impact of the US economic policy, geopolitical uncertainty in the Middle East and the slowdown in the global economy, all of which affect the Thai economy.
Adverse scenarios are defined, reflecting economic recession, declining income, higher inflation due to increased labour and spare part costs, as well as climate change affecting public health, resulting in higher rates of medical treatment and medical expenses, alongside increased frequency and severity of natural disasters.
“The OIC has developed a method to determine risk factors to make the assessment more accurate by using each company’s business profile, which is based on the Internal OIC Model: Customised Parameters,” said Dr Ayusri.
“Insurance companies participating in the test must consider all factors related to their business, using historical data, actuarial models and forward-looking considerations. Our goal is to strengthen the financial stability (solvency) and liquidity of the insurance business sector.”
She also said, “The OIC Stress Test is part of the preventive supervision approach that the OIC has continuously emphasised to enable insurance companies to effectively cope with various risks and to build confidence in the Thai insurance system in the long run.”