UK insurers could see capital requirements for catastrophe exposures increase by up to 97 percent under Solvency II rules, according to a report by Willis Re, the reinsurance arm of broker Willis.
The report also predicts possible increases for French and German insurers, although these are not expected to be quite so steep.
This increase has been attributed to modelling changes in the new RMS model version 11. The report found that increases in storm frequency, storm clustering and vulnerability together contributed to a large overall change in RMS’ view of risk.
However the report also explains that this increase could be reduced for insurers who are better diversified.
“From validating against 3rd party hazard datasets and testing against our clients’ loss experience, we see the RMS v11 modelling as being an improvement in many respects but with certain major calibration issues,” said Tim Edwards, divisional director at Willis Re Analytics and author of the report.
“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. This is what is happening as a result of RMS issuing the latest version of its own model.”
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modelling changes, Solvency II, Willis Re, RMS