By Julien Masselot, Partner and Head of Capital and Risk and Fearghas MacGregor, Principal and Head of GI Capital Modelling & Strategy, Barnett Waddingham
What's different about DyGIST?
"This is a three-week live exercise – firms will need to react in real time, not just submit a pre-prepared response."
The PRA has stated that the purpose of the DyGIST is to:
Assess the industry’s solvency and liquidity resilience to a specific adverse scenario.
Assess the effectiveness of insurers’ risk management and management actions following an adverse scenario.
Inform PRA’s supervisory response following a market-wide adverse scenario.
After the three-week live exercise is complete, there will be time for firms to reflect and refine their final quantitative submission and respond to any qualitative questions. The PRA will then follow up with firms and with the Society of Lloyd’s on the submissions, and final results are expected to be shared with the market in December 2026.
While this may seem daunting, firms should view DyGIST as an opportunity to strengthen their risk management processes and test their resilience, rather than as a stress test designed to make firms fail. The PRA has described it as a “fire drill”, striking a balance between a purely theoretical stress test where details are known up front, and the urgent and unknown nature of actual crises that have occurred in the past such as the responses to the beginning of the Covid-19 pandemic.
Treat it like a fire drill, not a tick-box exercise
And, like a fire drill, DyGIST can either be treated as a necessary evil of compliance, or as a chance to demonstrate preparedness and to refine emergency responses. It can be tempting for firms to consider this all as 'business as usual' (BAU), assuming that their theoretical response will be sufficient and that their existing frameworks will work flawlessly – particularly if they have been developed in the wake of more recent significant loss events, such as the war in Ukraine, Covid-19 or natural disasters. But now is not the time to rest on your laurels: there is a danger that past approaches may not be flexible or responsive enough for the possible curveballs that the PRA may throw at you.
"DyGIST can be a compliance chore – or a chance to prove you’re prepared and sharpen your crisis response."
Instead, the coming months are the ideal time for firms to assess their capabilities and to ensure that they have set up all the required processes and resources in advance of DyGIST, or that they are confident they will have access to these as soon as possible. Some key considerations that should be addressed well in advance are:
- Are senior management aware and prepared to lead? Who will ultimate be responsible for the firm’s response? How is this addressed within your governance framework?
- Coordination between all the contributors and project management will be crucial. Do you have the capabilities and will they be available at short notice?
- Are the models and technical processes flexible and quick enough to respond? What trade-offs between speed, accuracy, and ease-of-use are you willing to make?
- In all areas, do you have the right mix and availability of resources? The live exercise is over a tight three-week time period, and so you may need to scale up teams at short notice to deal with deadlines and respond quickly regardless of your BAU situation.
Addressing these questions now will not only make DyGIST itself easier but will also pay dividends in preparing firms for the necessary responses to any real-world crises that occur in the future. This all forms part of the risk management cycle, not only learning from past events but also looking forward and preparing for the unknown future.
|
