Far-reaching move on flooding
The Association of British Insurers (ABI) and the UK government have signed a memorandum of understanding having agreed to work towards creating Flood Re, a not-for-profit pool designed to fund one-in-200 year flooding events. The government will take primary responsibility for the distribution of available resources should claims exceed the one-in-200 year estimate. The target launch date for Flood Re is summer 2015 and it will be run and financed by insurers. Around 200,000 homes are expected to be passed to Flood Re with premiums based on the council tax banding. Homes built after 1 January 2009 will not be covered by the scheme. This is intended to "avoid incentivising unwise building in flood risk areas" according to the ABI. An average levy of £10.50 on annual household premiums should generate £180m of annual premiums to the pool. ABI director-general Otto Thoresen said that "getting to this stage has required compromise by both sides and there remain issues that need to be overcome. Flood Re would be a major undertaking for UK insurers and the work insurers have undertaken to get here reflects the industry's desire to cover flood risk at an affordable price in the face of the increasing flood threat in the UK".
FCA to probe 'unfair' renewals
The Financial Conduct Authority (FCA) has launched an investigation into claims that consumers are overcharged when they renew their house or car insurance. The FCA is concerned that automatic renewal can lead to consumers being treated unfairly. The chairman of the Commons' Treasury committee, Andrew Tyrie, wrote to the FCA and the Association of British Insurers raising concerns that older people in particular could suffer as they are less likely to shop around on the internet for the best deals. In a statement released on 5 July, Tyrie stated that: "The previous regulatory regime failed to protect customers.
The FCA can do a lot to help vulnerable consumers. The committee will scrutinise closely the information gathered by the FCA."
Warning system woes
There is growing concern among London market insurers regarding the Prudential Regulation Authority's (PRA) proposed early warning indication (EWI) system. Under the proposal outlined by the PRA, EWIs would be triggered for general insurers if capital levels fell below 175% of their pre-corridor minimum capital requirement. According to several observers, in many cases this 'crude measure' would produce an individual capital guidance (ICG) in excess of that output by companies' own Solvency II-sanctioned internal models. Concerns grow that the system might effectively make Solvency II-compliant internal model calculations redundant. The PRA has acknowledged that the EWI thresholds had been set at a level where 10% of firms would fall below them. Lloyd's general counsel, Sean McGovern, warned that the plans would set the UK at a competitive disadvantage compared with other jurisdictions. The International Underwriting Association is to set up a working party to examine in more detail the PRA's proposed EWI system.
Biggest euro storm bond
The largest-ever European windstorm-focused cat bond closed at 280m (£241m). The contract gives Swiss Re per-occurrence protection against windstorm losses in France using an index from Switzerland-based Perils AG. Swiss Re has in turn reinsured Groupama against losses from European windstorm events in France. Swiss Re Capital Markets' head of ILS Europe Jean-Louis Monnier said that "as the largest Europe windstorm transaction and largest euro-denominated deal to date, this issuance further demonstrates the depth of the ILS market and its ability to complement reinsurance for European perils".
Surge in Gulf insurance growth
Insurance in the Arabian Gulf is likely to grow at a compound annual rate of 18.1% between now and 2017 according to a report from Alpen Capital. Non-life already has an 87% share of the total insurance sector in the Gulf and is likely to grow by 20% a year, increasing to nearly $35bn (£23bn) in annual premiums. Non-life insurance penetration is expected to grow from 0.9% of GDP to 1.9% of GDP in the five years to 2017. Alpen Capital managing director Sameena Ahmad said that "low insurance penetration, despite strong underlying growth drivers, continues to offer ample opportunities to insurers in the Gulf." The UAE and Saudi Arabia remain the largest markets in absolute terms, with growth in Saudi Arabia expected to be at an above-average 26.5% compound annual rate. That could see Saudi Arabia eclipse the UAE as the largest market in the region.
Canadian floods -
Heavy rain in Canada led to flooding that has been described as the worst in Alberta's history. More than 100,000 people were displaced throughout the region. Four people were killed, there was more than $3bn (£1.9bn) in economic losses and insured losses are estimated to be greater than $1bn (£0.6bn).
European floods -
Flooding in central Europe emerged after heavy rain at the end of May and in early June. Germany, the Czech Republic and Austria have all seen severe flooding, with several other countries, including Hungary, Poland, Slovakia and Switzerland, affected to a lesser extent.
Economic losses are estimated to be in excess of $16bn (£10.5bn), with insured losses of $3.9bn (£2.5bn).
For German insurers, the loss is expected to be greater than that experienced by insurers after the floods of 2002. Some 32% of affected homes are now insured against flooding, up from 19% in 2002. It is estimated that there will be up to 180,000 property-related claims, compared with 150,000 in 2002.