Annual Report 2008

Solvency II

EU legislation which will effect the capital requirements of European insurers and reinsurers is due to take effect in 2012. We have a major programme of work which is aimed at ensuring that our own capital and risk management model will be accepted by the FSA for the purposes of setting our capital requirement. If it is not, our capital will be set using a standard formula which may be penal. The work we have already done in redefining risk and introducing a new risk reporting system will help achieve our goal.

At this stage we do not expect the new regulation to require Amlin to increase its capital resources. However, this may not be the case for less diversified businesses or for those who do not put sufficient emphasis on embedding proper risk management processes. Over the long term this should benefit the insurance industry as it will penalise those who have hitherto been content to chase business at prices that are almost certainly loss making. It may also add impetus to industry consolidation.

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