LONDON, Oct 25 (Reuters) - Insurers may need to hold up to 37 billion euros ($51.48 billion) of extra capital under new solvency rules to cover potential losses from windstorm damage in Europe, according to loss and exposure aggregator PERILS.
PERILS Chief Executive Luzi Hitz told Reuters on Thursday that natural catastrophe risk was likely to be a main driver of capital provisioning under the new regime.
“For non-life insurers in Europe, windstorm is one of the peak risks they run in their books because of the large geographical remit a storm can cover,” Hitz said.
European Union insurance watchdog CEIOPS is currently testing the new rules, which aim to link more accurately the capital that insurers hold with the risks they face, via its fifth quantitative impact study, known as QIS5.
There are currently no rules that require insurers to hold a set amount of capital for a specific catastrophe, said PERILS.
CEIOPS is providing technical advice to the European Commission as it drafts the Solvency II rules, which are due to be implemented in 2013.
PERILS said that, under the QIS5 scenario for a huge but rare storm in Europe — a one in 200 year event — the gross occurrence-based loss for all nine markets the firms covers would amount to 36.7 billion euros.
Swiss-based PERILS provides values for industry losses from natural disasters in Europe that can be used as a basis for insurance-linked securities (ILS) transactions, similar to the Property Claims Service data widely used in the United States.
The firm applied the windstorm scenarios of the QIS5 to Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Switzerland and the United Kingdon.
“Our motivation is to contribute to the better understanding and transparency of European catastrophe risk. It is a market that is evolving in terms of modelling capabilities and data quality.”
Insurers typically use reinsurance or ILS products such as catastrophe bonds to transfer their potential from European windstorms to the capital markets.
Eight firms jointly founded PERILS AG last year to aggregate European catastrophe insurance data and offer them to third parties by subscription. They included insurers Allianz (ALVG.DE), AXA (AXAF.PA), Groupama and ZFS ZURN.VX, reinsurers Munich Re (MUVGn.DE), PartnerRe Ltd PRE.N and Swiss Re RUKN.VX, and reinsurance brokerage specialists Guy Carpenter (MMC.N). Click here to join the Thomson Reuters Insurance Linked Securities Community for more news and analysis: here ($1=.7187 Euro) (Reporting by Sarah Mortimer; Editing by Catherine Evans and Jon Loades-Carter)