The Prudential Regulation Authority’s (PRA) July 2025 update on the Dynamic General Insurance Stress Test (DyGIST) has established how insurance companies are expected to respond to the May 2026 launch. During the first live exercise, they’ll be required to demonstrate speed, flexibility and credible governance during periods of unfamiliar and severe shocks.
While DyGIST is framed as a compliance exercise, it actually offers insurers the opportunity to test how well they can adapt in real-time to scenarios that will only be revealed during the live exercise. They should view it, therefore, as something more significant – the chance to increase resilience, sharpen risk frameworks and embed actuarial insights directly into business planning.
DyGIST background
As we mentioned in our last post, DyGIST is designed to test insurers’ ability to respond in real time to adverse scenarios. Unlike previous stress tests, which focused on predefined shocks, DyGIST will deliberately withhold the details of the stress events until the ‘live’ phase, which is scheduled for May 2026. Firms must, therefore, demonstrate the flexibility and resilience of their models, data pipelines and decision-making frameworks under conditions of uncertainty.
The PRA has three main objectives:
- To assess solvency and liquidity resilience
- To judge the effectiveness of risk management and management actions, and
- To inform its supervisory response to a market-wide adverse event.
However, in practice, DyGIST’s scope is even broader. It will test operational readiness, governance and adaptability as much as balance sheet strength.
For actuarial teams, this means moving from scenario replication to dynamic modelling, forward-looking risk assessment and capital planning.
From insight to planning
Some insurers may view DyGIST as an inconvenient and resource-intensive exercise that yields few results. However, it should not be considered simply as a technical exercise. It is as much about operational readiness as it is about balance sheet strength and its implications should be seen as a rare opportunity for insurers to look at their business in a new way – how would they cope if multiple adverse conditions happen at the same time? And what would that mean for their strategy?
Stress testing should inform:
Capital management – by running modular stress tests, actuarial teams can gain deeper insights into capital requirements under various scenarios. They can explore how multiple, interacting stresses affect capital adequacy and liquidity over time. These insights can then inform forward-looking Own Risk and Solvency Assessments (ORSA) and capital allocation decisions.
Risk appetite – DyGIST encourages insurers to consider not only whether their companies can survive a stress event, but also the level of volatility or exposure they are willing to accept. Boards will need to communicate risk appetite statements that incorporate unfamiliar combinations of events, such as high interest coupled with clustered weather events compounded by reserve deterioration. Stress testing, therefore, becomes a live input into setting, monitoring and revising risk appetite.
Business planning – for actuaries working closely with finance and underwriting, DyGIST insights can inform pricing strategies, reserving assumptions and product design. If a stress scenario reveals particular sensitivities, for example, expense inflation or exposure concentration, these can be factored into strategic planning, not just regulatory reporting.
By incorporating DyGIST insights into the business planning cycle, insurers can utilise the regulatory exercise as a tool for refining decision-making throughout the company.
Key implications
The latest PRA update has made it clear that actuarial teams should prepare for the May 2026 event now. Several themes are of importance:
- Framework flexibility
Actuarial models must be modular and adaptable. Since detailed scenarios will only be released next May, teams cannot make assumptions. Instead, they must design frameworks that are capable of handling new and potentially severe combinations of stresses - Data robustness
Stress testing under DyGISY depends on rapid access to granular, high-quality data. Insurance teams should ensure that historical exposures, claims trends, correlation structures and expense assumptions can be retrieved and applied quickly. Data lineage and reliability will be crucial - Governance and accountability
Boards are expected to actively engage with the process. This means providing transparent narratives that explain modelling assumptions, document decisions and highlight limitations. Independent review or challenge will be essential to establish credibility - Communication
While DyGIST results will only be published at sector level, individual firms will still need to communicate with regulators, boards and, potentially, rating agencies. Teams, therefore, should refine their ability to translate technical outputs into strategic insights.
In short, DyGIST should not be used simply to satisfy the PRA but to build a stronger, more resilient business model.
Planning ahead
Between now and the launch, the PRA’s workshops will provide further technical detail and clarify logistics. However, waiting until then risks leaving preparation too late. Resilient insurance firms should already be investing in:
- Strengthening data and model infrastructure to ensure flexibility and scalability
- Embedding board and executive engagement so that stress testing becomes a central governance activity
- Integrating stress test insights into a forward-looking strategy that moves from compliance to transformation.
Final thoughts
DyGIST represents more than simply a new level of regulatory scrutiny. It signals a change in the PRA’s expectations of resilience. The challenge for insurers is to not simply produce numbers for compliance, but instead to deliver insights that shape business planning, capital management and risk appetite. Firms that view DyGIST purely as a compliance obligation may deal adequately with the exercise but may also overlook its strategic value. Those that act now, by strengthening systems, embedding governance and applying insights to business decisions, will not only meet and possibly exceed the regulatory requirement, but also future-proof their functions against a volatile and uncertain market.
For more information on any of the issues we’ve discussed here, contact us.
