Europe

Risk diversification

A new report published by the Association of British Insurers (ABI) suggests that risk diversification can reduce the capital requirements of general insurers in the UK by between 25% and 50%. The report is the result of a joint project between the ABI and tax and auditing consultants, Deloitte & Touche, to examine the Financial Services Authority's new capital regime for general insurance. Peter Vipond, director of Financial Regulation and Taxation at the ABI, said that the aim of the research was to quantify the benefit to firms from writing different lines of business. “For example spreading risk across property, motor and accident and health, when working out their individual capital assessments (ICAs),” Mr Vipond said. He noted that discussions between general insurers and the FSA regarding ICAs are now well underway. “It will be important that the FSA takes account of this new research, and allows for the benefit of diversification, where clear evidence is provided, when setting Individual Capital Guidance.” The report has been sent to HM Treasury and the European Commission amongst others, as part of the ABI's lobbying for a sophisticated risk-based approach to capital adequacy in the UK and at EU level in the forthcoming Solvency II Directive. The ABI is pressing for the adoption of such a regime for capital setting and supervision to enable UK insurers to continue to operate efficiently in a competitive market, delivering good value insurance, pensions and investment products for consumers across the UK and the EU.