UK insurers seek changes to Bank of England's live crisis stress test
UK insurers are pressing the Bank of England's regulatory arm to revise its first live crisis simulation, citing heavy demands and unrealistic scenarios.
Britain's insurance industry is pressing the Bank of England's regulatory arm to revise its first live crisis simulation, arguing the exercise placed excessive reporting demands on firms and relied on scenarios that were unlikely to occur together.
The Prudential Regulation Authority ran the three-week "dynamic" stress test in May, subjecting selected insurers to a sequence of shocks: a U.S. West Coast earthquake, a Gulf of Mexico hurricane, a UK windstorm, European floods and a cyber event.
Unlike earlier tests built around predefined shocks, the exercise — known as DyGIST — revealed scenario details only as the situation unfolded, testing how firms responded in real time.
Nafisah Hussain, director of public policy at the International Underwriting Association, a trade body for London market insurers and reinsurers, said the concentration of scenarios over such a short period was highly improbable. She warned that repeating similar tests regularly could prove overly burdensome, adding that regulators would be able to draw only limited policy conclusions from the results. The association has submitted its views to the PRA.
Industry sources said the exercise stretched internal resources, with some firms cancelling staff leave and bringing in technical experts at short notice once the scale of the demands became clear.
"We don't think they'll run it again, or certainly not in this form," said Sue Dreksler, a partner and head of KPMG UK's general insurance actuarial team.
Stress tests are widely used by regulators around the world to gauge how financial institutions withstand shocks. Participation in DyGIST was limited to firms chosen by the PRA, representing 80% of the UK general insurance market. For those companies, the exercise formed part of the regulator's supervisory programme rather than a voluntary industry-wide test.
The PRA said the exercise assessed the sector's dynamic response and resilience to different shocks spread over three weeks, and was designed to explore areas beyond a traditional stress test.
Not all feedback was critical. Paul Davenport of the Lloyd's Market Association said chief risk officers regarded the live element as a genuinely useful exercise.
The regulator is due to publish its findings by the end of the year and said it will take account of feedback on resourcing and proportionality as part of its post-exercise review.