> For the complete documentation index, see [llms.txt](https://docs.re.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.re.xyz/risk-controls-and-what-can-go-wrong/stress-tests.md).

# Stress tests

Stress tests are analyses that show how a reinsurer’s portfolio would perform under extreme scenarios. The results are helpful toward guiding underwriting policy, determining safe exposure limits, deciding upon reserves, determining retrocession needs, and all the other layers that feed into a reinsurer pursuing a prudent business strategy.

Every contract Cover Re SPC Ltd. writes is modeled for volatility, which produces a full distribution of outcomes for the position. It can be read from that distribution what the result would be at the 99th percentile, the 99.9th percentile, and beyond. The output is not itself a risk mitigant; it is a tool that informs the rest of the framework: how much capital must be held to survive a given severity; how much retrocession must be bought and at what attachment; and which business should be avoided if the capital cost of carrying it is too high. No reinsurer can hold enough capital to survive every conceivable scenario, short of holding infinite capital, so the question stress testing answers is where to set the risk tolerance, and how to spend capital and retrocession against that tolerance.

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