Prudential Regulation Authority (PRA) statement on the design of the dynamic general insurance stress test (DyGIST) 2025

Statement

In October 2023 the PRA announced its intention to run a DyGIST in 2025^{footnote [1]}. The objectives of the DyGIST are to: (i) assess the UK general insurance sector’s solvency and liquidity resilience to a specific adverse scenario; (ii) assess the effectiveness of insurers’ risk management and management actions following an adverse scenario; and (iii) inform the PRA’s supervisory response following a market-wide adverse scenario. The PRA also indicated that it would provide more details on the design, timetable and participation of the test, which are set out in this statement.

Industry workshops

Between November 2023 and February 2024, the PRA engaged with the industry through a series of workshops for the relevant trade bodies (the Association of British Insurers, the Lloyd’s Market Association and the International Underwriting Association), as well as the Society of Lloyd’s. These workshops have influenced the high-level design and timing of the exercise (as set out below) and will continue to inform the PRA’s approach as it develops the events needed to meet the objectives of assessing solvency and liquidity with a view to testing risk management.

Design and timetable

The design of the stress test supports the three objectives of the exercise. As such, DyGIST will comprise three phases:

1. The ‘live’ exercise: During the ‘live’ exercise firms will be presented with a sequential set of adverse events over a three-week period in May 2025 and will be asked to react to these as they would to real events. Firms will be asked to provide initial financial impact assessments following each event, to engage with their supervisory contacts and follow their expected management action plans (in line with their risk management processes).

2. Final firm assessment and reflections: By end of July 2025, firms will be asked to submit a final quantitative template with updated estimates of the impact of the events (this acknowledges that during the ‘live’ exercise loss estimates may be based on scaling up exposures or applying other shortcuts to meet the demands of providing early estimates that would be required in a crisis) and a qualitative questionnaire intended to draw out any risk management learnings.

3. Analysis, publication and integration into supervisory plans: DyGIST will be a core component of 2025 supervisory activity for firms in scope. The PRA intends to publish the findings of the exercise in 2025 Q4, and dependent on conclusions, individual firm findings will also feed into supervisory plans for 2026.

The PRA expects to run a single scenario with multiple events for all participants, and as noted previously (see design and timetable section), results will be published on an aggregate industry level only.

Participation

The PRA intends to invite the insurers listed in Annex A to participate in the exercise. This list covers around 80% of the PRA regulated general insurance market, including some of the largest branches, as measured by gross written premium.

Next steps

In the second half of 2024 the PRA will hold further workshops with participating firms, vendors and brokers who may be supporting firms throughout the exercise and will continue to invite trade bodies to participate. The purpose of these additional workshops will be to support and seek feedback on the logistics of producing and running a set of stylised adverse events – noting that the final scenarios will only be provided during the ‘live’ exercise.

Annex A

The PRA intends to invite the insurers listed in Annex A to participate in the exercise.