Briefing note: New York Insurance Department Circular Letter No. 25

Briefing note: New York Insurance Department Circular Letter No. 25
Download Briefing note: New York Insurance Department Circular Letter No. 25

The New York State Insurance Department recently issued Circular Letter No. 25 (2008). This letter outlines the Department's expectation that all insurers should have a financial stress testing process in place as part of their risk management framework. It requires insurers to "systematically review their stress testing and scenario analyses, especially in light of recent market events", noting that "inputs, assumptions, stress scenarios and the resulting impacts should be continuously monitored, assessed and updated".

The letter also provides guidance regarding the types of scenarios that should be tested, which may include:
  • Interest rate shocks;
  • Equity market shocks;
  • Yield curve shifts;
  • Changes in credit quality and liquidity;
  • Rating agency downgrades;
  • Collateral calls; and
  • Large-scale catastrophes.
In addition, the letter notifies insurers that the Department intends to conduct a review oftheir processes relating to financial stress testing and scenario analyses.