UK regulator the Prudential Regulation Authority (PRA) has revealed plans to conduct a dynamic general insurance stress test in 2025.
The objectives of this dynamic stress test, which is scheduled to take place in 2025, are threefold. The PRA aims to evaluate the solvency and liquidity resilience of the insurance industry in response to a specific adverse scenario.
The exercise will also focus on assessing the effectiveness of insurers’ risk management strategies and their actions in the face of adverse scenarios.
The data gathered from the stress test will play a crucial role in shaping the PRA’s supervisory response in the event of a market-wide adverse scenario.
The dynamic aspect of the 2025 stress test marks a notable departure from prior evaluations, as it will entail modeling a series of adverse events in rapid succession.
As a result, the PRA plans to collaborate with the insurance industry and trade bodies in the coming six months.
The aim is to offer further information about the stress test, encompassing details on how to participate, its design, and the schedule, all of which will be disclosed in the first half of 2024.
On May, following publication of the results of its 2022 Insurance Stress Test, the PRA said it also planned to work on the design of the longer-term strategy for insurance stress testing, and will announce a timeline for the next insurance stress test during the second half of 2023.
One of the supervisory measures announced by the Government in November 2022 was to require firms to participate in regular stress testing exercises prescribed by the PRA and to allow the PRA to publish individual firm results.
