London market firms put through live crisis simulation in PRA stress test

Members of the International Underwriting Association (IUA) took part in a live stress testing exercise run by the Prudential Regulation Authority (PRA), designed to assess how insurers would respond to a fast moving systemic crisis. 

The Dynamic General Insurance Stress Test (DyGIST), which ran throughout May, examined the London company market’s ability to manage a series of escalating events ranging from cyber attacks and natural catastrophes to financial market disruption.

Unlike traditional stress testing exercises, firms were not informed of the scenarios in advance and are responding to events in real time as they unfold.

The exercise includes a systemic cyber attack, a severe global financial downturn, major earthquake and hurricane losses in the US, a significant UK windstorm and additional scenarios focused on reinsurance resilience.

The PRA said the exercise was intended to test both firms’ balance sheets and their operational decision making during a crisis environment.

Nafisah Hussain, director of public policy at the IUA, said: “It is a rare and valuable way to test the whole insurance system.”

Extreme scenarios

Hussain said the scenarios were “deliberately stretching”, combining cyber and catastrophe events that would be unlikely to occur simultaneously but remained within the bounds of possibility.

“What makes the DyGIST exercise different is that it is a genuinely live test,” she said.

“Both the PRA team and the London market firms taking part were not aware of the test scenarios in advance and are responding in real time.”

She added that the exercise was not only testing insurers, but also examining how effectively the regulator itself could respond under pressure.

“The PRA’s responsiveness so far has been helpful to companies working through a demanding operation,” Hussain said.

The IUA said it would work with members and the regulator to assess lessons learned once the exercise concludes, with findings likely to inform future approaches to operational resilience and systemic risk management across the insurance sector.