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ISSUED 11/18/2008FOR IMMEDIATE RELEASE

INSURANCE DEPARTMENT TO REVIEW INSURERS' STRESS TEST PROCESSES

The New York State Insurance Department today announced that it will begin reviewing the processes insurance companies use to evaluate how changing economic conditions affect insurers' financial stability.

"The Department expects every insurer to have scenario stress testing in place as a part of prudent management. The Department intends to review those processes, including investment functions, to discern how different economic scenarios are analyzed by senior management to determine what actions are warranted," said Superintendent Eric Dinallo.

Most insurers conduct financial stress testing as part of their normal business practices. In light of the recent turmoil in the financial markets, the Department is advising insurers that it will review their stress testing processes.

The Department's reviews will include assessing how market changes such as interest rate shocks, changes in credit quality and liquidity, and collateral calls could potentially affect an insurance company's financial condition.

The results of stress testing will enable insurers to assess the effect of different economic scenarios on their businesses. The results of stress testing should be incorporated into the insurers' decision-making processes.

The Department announced the reviews in an advisory, known as a "circular letter," to insurance companies licensed by the state. Circular Letter #25 (2008) is available on the Department's website, http://www.ins.state.ny.us/circltr/2008/cl08_25.pdf. The Department's Property, Life, Health and Capital Markets Bureaus will conduct the reviews.

 

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