What’s New: In Brief (April 03, 2008)

The European Commission’s Solvency II Directive is expected to increase substantially regulatory capital requirements for most European insurers, although no extra capital is likely to be required for the market as a whole.A.M. Best’s review of Solvency II’s implications found that under the new regime, slated to take effect in 2012, insurers will have a strong incentive to take advantage of all risk mitigation techniques available, including reinsurance, securitization and hedging.The increase in regulatory capital requirements is likely to trigger increased demand for reinsurance, the report says.”However, the introduction of credit risk in assessing reinsurance recoverables is likely to drive greater optimization of reinsurance programs rather than simple increase in cessions,” the report says. Securitization of liabilities also may become more prevalent, especially among non-life insurers, given that its impact is not reduced via increases in credit risk, A.M. Best adds.

Risk Management Solutions (RMS) is urging the U.K. government to develop an accurate database of information on flood defences. The Environment Agency currently has information about defences for less than half the 21,000 kilometres of major river networks in the U.K., seriously hampering attempts to quantify flood risk, a RMS release says. As well as data on flood defences, RMS is emphasizing the need to examine all sources of flood risk. The Environment Agency’s maps include flood risk only from coasts and major watercourses; they do not take account of ordinary watercourses and flash flooding, RMS noted. “Additionally, the Environment Agency’s maps are based on risk estimates for each location and do not provide information on the risk of simultaneous flooding across an area or several areas from the same event,” the release said.