Aug 3 (Reuters) - Australian insurers are well-positioned to ride out a very severe economic downturn caused by the COVID-19 pandemic, the country's prudential regulator said on Tuesday, based on a series of stress tests it conducted last year.

The Australian Prudential Regulation Authority (APRA) said the country's 21 largest life insurers, including 14 direct insurers and seven reinsurers, were tested for the impact of a prolonged COVID-19 scenario and their resilience to the economic consequences.

The results of the stress tests come as Australia struggles to contain the spread of the Delta variant of coronavirus that has forced lockdowns in several states and is likely to hit economic activity hard.

Mortgage insurers were subject to a scenario where the gross domestic product (GDP) contracted 10%, with unemployment levels rising to 10% and house prices slumping 30%. Life insurers faced a more severe test, with a 15% contraction in GDP, unemployment at 13% and significant claims deterioration.

The test results showed mortgage insurers and life insurers remained above their minimum capital requirements, while still meeting their commitments to policyholders despite notable loss of capital, the APRA said.

Some insurers fell below their minimum capital requirements, with capital levels returning to pre-stress levels after management actions to alleviate the stress, the regulator added.

Morgan Stanley in July said it expects Australian insurers to make one-time savings in the lockdown, offsetting business interruption losses in part. (Reporting by Riya Sharma; Editing by Ramakrishnan M.)