By Huw Jones

Britain's insurers should use findings from an emergency stress test in April to check if they can meet business interruption claims from the COVID-19 pandemic, the Bank of England said on Wednesday.

"Our analysis showed that the sector was robust to downside stresses, with the highest uncertainty centred on certain general insurers' liabilities - particularly those arising from business interruption claims," the letter from the BoE to insurance chiefs said.

The BoE was publishing findings from its annual stress test of insurers for 2019 that was supplemented by further testing in April after markets fell sharply in response to lockdowns.

It said the 20 largest insurers, 15 large syndicates and Lloyd's of London insurance market that were tested should closely monitor risks presented by COVID-19 and update their capital assessments.

"We expect boards to assess whether the findings apply to their firm and present an action plan to their supervisors to address them," the letter said.

Life insurers would be able to manage the severe stresses tested for, but general insurers face uncertainty over their ability to pay claims from companies that shut during the lockdown.

Companies are challenging insurers that refuse to pay such claims.

Britain's Financial Conduct Authority is going to court in July to seek legal clarity on whether the wording in a sample of policies mean that compensation claims are valid.

"We support this initiative and will work with the FCA and firms to understand the potential financial impact of the court case," the BoE said.

Last year's test also included an "exploratory" scenario on insurers' ability to measure the impact of climate change on their business. It found "significant gaps" that must be addressed before more detailed findings can be shared.

The next regular annual stress test has been delayed to 2022 to give firms more time to focus on dealing with COVID-19.

(Reporting by Huw Jones; Editing by Kevin Liffey, Kirsten Donovan)