The UK insurance industry has told the Bank of England's regulatory arm that its first live stress test worked as an experiment, but should not be repeated in its current form.
In May, general insurers spent three weeks taking part in the Prudential Regulation Authority's first "dynamic" stress test. The exercise 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 it is over, industry voices are telling the regulator that the pace and scale 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 did not 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. That made it 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 is not with the concept of live testing itself, but with running something this demanding on a regular basis. She 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 in May, Hussain was upbeat about the format, 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, does not expect the PRA to repeat the exercise in the same shape, according to industry sources familiar with the feedback being given to the regulator.
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