A new report published by the ABI suggests that risk diversification can reduce the capital requirements of general insurers by between 25-50%.

The ABI has been working with Deloitte to examine the FSA's new capital regime for general insurance. In particular, the research seeks 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).

Peter Vipond, ABI director of financial regulation and taxation said: "Discussions between general insurers and the FSA regarding ICAs are now well underway, and the industry has risen to the challenge of moving to a sophisticated risk-based approach.

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 Deloitte 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.

Topics