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Flood Re response to the consultation on the Flood Reinsurance Scheme Regulations

Flood Re Limited has published its response to the Department for Environment Food & Rural Affairs consultation on the Flood Reinsurance Scheme Regulations.

It is envisaged that Flood Re Limited will be the body designated in legislation as the Flood Re Scheme Administrator. The consultation discusses the proposed statutory framework within which directors of Flood Re would need to operate the company as a reinsurance facility for homes in high flood risk areas.

This response acknowledges the good work undertaken to date by both industry and Government in partnership towards implementing the scheme, which is a world-first.  However, it also highlights a number of key areas within the draft regulations consulted on which will need to be altered for the scheme to be workable. 

Flood Re directors continue to work constructively with Government to find solutions ahead of designation of the scheme next year. 

The response, in particular, notes concerns with, and potential solutions for, the following:

  • The current statutory requirement not to impact public sector net borrowing (“PSNB”) by more than £100m at the end of the financial year.  This means, in broad terms, that Flood Re directors will be under a legal obligation not to make a loss on Flood Re’s Profit and Loss account (P&L) of more than £100m if classified as a public body by the Office of National Statistics (“ONS”).  Given (re)insurers’ P&Ls are inevitably volatile due to the nature of the risks taken on, this is not something the directors of Flood Re can commit to since such losses are often outside the control of directors and outwards reinsurance would not be a guaranteed safeguard;
  • A wide-ranging power in legislation to call additional amounts from relevant insurers as levy (tax), rather than capital contributions, from time-to-time, which would have no prospect of repayment and could potentially result in volatility for insurers’ profitability and impact wider household premiums (contrary to the agreement reached in the MoU and policy intent);
  • The failure to make explicit in the regulations that capital contributions provided by relevant insurers to recapitalise Flood Re at any future time can be repaid by Flood Re at the discretion of directors (subject to PRA approval), which again will potentially result in volatility for insurers’ profitability and impact wider household premiums;
  • Restrictions on Flood Re’s ability to borrow, which will prevent it from operating as efficiently and effectively as it could otherwise.

The response also calls for the inclusion of Band H properties, which would simplify the operation of the scheme.

Read Flood Re's full response to the consultation on the Flood Reinsurance Scheme Regulations (pdf 478kB).


Last updated 01/07/2016