Hiscox plans insurance stress test for possible future disasters

California has fallen into the sea, oil rigs have collapsed and the markets are tanking. No, not the latest disaster blockbuster but a string of possible scenarios for an industry-wide stress test on the insurance sector.

Insurance giant Hiscox today said it is speaking with Lloyd’s of London, the Prudential Regulation Authority and other underwriters to arrange a system-wide stress test to “dry run” a response to a huge natural disaster or terrorist outrage.

It is being led by Hiscox chairman Robert Childs, and chief executive Bronek Masojada. “People are out of practice,” Masojada said. “We want to test the stress when the sun shines to see if it will work when it rains.”

A stress test, which is regularly run on the banking industry, could happen later this year if everyone agrees on a plan.

Hiscox today reported a drop in pre-tax profits for the year ending December to £216.1 million from £231.1 million last year despite a 10.7% rise in gross written premiums to £1.94 billion.