Diversification could reduce capital requirements by 50%, says ABI
Risk diversification should typically reduce capital requirements for British life insurers by between 25% and 50% under the Financial Services Authority's new individual capital assessment regime, according to a report commissioned by the Association of British Insurers (ABI).
The conclusion of the report, entitled Key correlation assumptions in ICA for life offices, will come as welcome news to UK insurers, who are still getting used to their regulator's new risk-based capital adequacy framework which came into play at the beginning of the year. European insurers in general have been pushing regulators and rating agencies to take account of diversification across business lines when assessing capital adequacy.
"If the effect of risk diversification is not fully taken
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