Solvency II could hike U.K. insurers' capital requirements for cat risks: Willis Re
Reprints
U.K.-based insurers may see their capital requirements for catastrophe exposures increase up to 97% once Solvency II is enacted, according to a new report issued by Willis Re, the reinsurance arm of London-based Willis Group Holdings P.L.C.
According to the report “RMS v11—UK Overview,” the expected rise is due to how catastrophe exposures are calculated under the new RMS version 11 wind model compared with calculations under version 10.
The maker of RMS Version 11.0, Newark, Calif.-based Risk Management Solutions Inc., says the new model incorporates the results of three years' worth of research and development and reflects improvements in underlying calibration data and modeling methodologies that will help insurers better understand the fundamentals of storm behavior.
The report says the new model regards U.K. insurers as more vulnerable to windstorm and storm surge losses than under the previous model due to increased storm frequency and clustering.
“From validating against third-party hazard datasets and testing against our clients' loss experience, we see the RMS v11 modeling as being an improvement in many respects but with certain major calibration issues,” Tim Edwards, divisional director in Europe for Willis Re and author of the report, said in a statement. “RMS is one of the key providers of vendor models, which insurers can license to help assess the exposures within their portfolio to extremes of risk. When one of these providers changes the parameters of their models, it can have dramatic implications for the insurers who rely on their outputs.”
Under Solvency II, insurers will be required to demonstrate that their net capital requirements are sufficient at the 1-in-200-year net aggregate exceedance probability level.
