The UK's insurance industry has a message for the Bank of England's regulatory wing: the experiment worked, but please don't repeat it in its current form.
Three weeks in May pushed general insurers through the Prudential Regulation Authority's first "dynamic" stress test – a live-fire exercise that threw a US West Coast earthquake, a Gulf of Mexico hurricane, a UK windstorm, European flooding and a cyber attack at firms in rapid succession, with no advance warning of what was coming next. Now that the dust has settled, industry voices are telling the regulator the pace and scale of the test went further than was useful.
At a glance: The PRA's first live "dynamic" stress test (DyGIST) ran for three weeks in May, hitting participating insurers with five compounding catastrophe and cyber scenarios in real time. Trade bodies say the workload was disproportionate; the PRA says it will publish findings by year-end and weigh feedback on proportionality before deciding DyGIST's future format.
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The test, known as DyGIST (Dynamic General Insurance Stress Test), broke from the PRA's usual approach of handing firms a predefined shock and asking them to model the fallout at their own pace. This time, insurers didn't know what scenario was coming until it landed, and had to respond to fresh information as it was drip-fed to them over three weeks – closer to a live incident-response drill than a spreadsheet exercise.
Nafisah Hussain, director of public policy at the International Underwriting Association, told Reuters that the exercise asked firms to absorb an unlikely pile-up of catastrophes in a very tight window. Her concern isn't with the concept of live testing itself, but with running something this demanding on a regular basis – she's warned it risks becoming "overly burdensome" for firms without giving the regulator much extra insight to justify the cost.
Her tone has shifted since the test began. When DyGIST launched back in May, Hussain was upbeat about the format itself, telling Insurance Business that "what makes the DyGIST exercise different is that it is a genuinely live test" – neither the PRA team nor the London market firms taking part knew the scenarios in advance. Four months on, with the results digested and feedback going back to the regulator, her enthusiasm for repeating the exercise regularly has cooled considerably.
That view is shared by at least one of the major advisory firms working with insurers through the process. Sue Dreksler, partner and head of general insurance actuarial services at KPMG UK, doesn't expect the PRA to repeat the exercise in the same shape, according to industry sources familiar with the feedback being fed back to the regulator.
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The pushback isn't really about the substance of the scenarios – earthquakes, hurricanes, windstorms, floods and cyber events are all firmly within the range of things a general insurer should be able to model. It's the operational strain of responding to five compounding events inside three weeks, with details revealed only as the test unfolded, that firms have flagged as disproportionate.
Sources close to the process say some participating firms had to pull technical specialists in at short notice and put staff leave on hold once it became clear the workload was heavier than anticipated. That's a meaningful ask for firms that were only ever brought into the test because the PRA selected them – DyGIST wasn't opt-in. Participation was drawn from insurers making up roughly 80% of the UK general insurance market, and for those firms it sat inside their existing supervisory relationship with the regulator rather than being a voluntary, sector-wide drill.
Not everyone in the market is unhappy about it, though. Paul Davenport of the Lloyd's Market Association has struck a more positive note, saying chief risk officers found genuine value in the live element – a chance to test decision-making and escalation routes under real pressure rather than in the abstract.
That split view – valuable exercise versus disproportionate burden – lines up with the wider set of pressures the IUA has been flagging to members this year, from geopolitical volatility to stretched underwriting teams.
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For its part, the Bank of England has defended the design, saying the aim was to examine how the sector's response and resilience holds up when shocks are spread out over time, rather than testing a single static scenario the way older stress tests did. DyGIST was always billed as an exploratory, first-of-its-kind exercise rather than a fixed annual fixture, which gives the PRA some room to adjust the format for next time without it looking like a climbdown.
The regulator has confirmed it will publish its findings from the exercise before the end of the year, and says feedback on resourcing and proportionality will feed into any review of how – or whether – DyGIST runs again.
Stress testing itself isn't going anywhere – it's a standard tool used by prudential regulators well beyond the UK to check whether financial institutions can absorb shocks without needing a bailout or causing wider market disruption.
The question DyGIST has raised isn't whether the PRA should keep testing insurers this way, but whether "live" needs to be quite this relentless to get useful answers.
