The UK Prudential Regulation Authority (PRA) of the Bank of England has announced plans to conduct a ‘dynamic stress test’ for general insurers in 2025.

As part of the slated exercise, the PRA will induce a series of adverse events in a limited time to check insurers’ financial resilience.

The regulator will use the results of the stress test to formulate its response and strategy in the future.

Through the exercise, PRA also intends to evaluate the solvency and liquidity resilience of the general insurance industry to certain adverse situations.

Furthermore, the test will evaluate the efficiency of insurers in handling risks and other activities following the occurrence of an adverse scenario.

The PRA will also obtain the necessary data to adopt a supervisory response subsequent to adverse events by executing the stress test.

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In a press statement, the PRA said: “The dynamic nature of the 2025 exercise represents a significant change from previous exercises and will involve simulating a sequential set of adverse events over a short period of time.

“Consequently, the PRA intends to engage with the industry including trade bodies over the next six months, with a view to providing more details of this exercise (including participation, design and timelines) during the first half of 2024.”

The regulator plans to release the test results of general insurers’ performance at a combined industry level in the future. 

The latest development comes after the UK announced plans to bring about rapid regulatory reforms in the insurance industry.