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Flood Re 'on track' for April 2016 opening after major reinsurance deal


Flood insurance scheme Flood Re is "on track" to accept its first policy in April 2016 after securing its first £1.29 billion worth of reinsurance cover, it has announced.

The scheme, which will enable households in areas of high flood risk to obtain affordable insurance cover, is now seeking a further £720 million worth of reinsurance protection through a second procurement process. It expects to conclude this process in January 2016.

Flood Re chief executive Brendan McCafferty said there had been "strong demand" from reinsurers in response to the first phase of the procurement process.

"This bodes well for phase two and means we are on course to provide protection up to the planned £2.1 billion annual liability limit," he said.

"Flood Re is a complex scheme and while we are pleased with the progress which is being made, we are not complacent. Plenty of hard work remains ahead of us. Over the next few months we need to ensure that every insurer who wishes to test with Flood Re is able to do so, that we successfully complete phase two of the reinsurance process and that we continue to work closely with the financial regulators," he said.

Insurers, brokers and software providers have been able to participate in Flood Re's 'on-boarding' process since August. The process allows them to test the system, and is mandatory for any industry participant hoping to sign up to the scheme when it goes live.

Regulations approving Flood Re were signed off by Rory Stewart, the government's flooding minister, earlier this month. The scheme must now be authorised by the UK's financial regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) before it can begin accepting business.

Flood Re is a joint initiative between the government and the Association of British Insurers (ABI), which is due to replace the ABI's voluntary 'Statement of Principles' on affordable flood insurance once in force. Insurers have volunteered to observe the existing arrangements until the scheme is fully in force.

Once established, Flood Re will cap flood insurance premiums for householders at a level based on the council tax band of domestic properties. Claims made by people in homes at high risk of flooding will be funded through an industry-backed levy, to be passed back to consumers at an estimated cost of £10.50 on annual premiums. The effect would be that of low risk properties cross-subsidising high-risk properties in the same way as is currently the case under the existing statement of principles.

Outward reinsurance protection for the scheme will be provided by "some of the industry's leading reinsurers", with Munich Re and Swiss Re contributing "very significant" support, according to the latest announcement. The three year reinsurance programme is the second biggest 'natural peril' reinsurance deal struck in Europe, and one of the first UK reinsurance deals to be conducted in accordance with the European Public Procurement regulations.

Insurance law expert Manoj Vaghela of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement of the deal was a "welcome development".

"Householders who have purchased homes in areas susceptible to flooding should sleep easier as a result of the Flood Re initiative," he said.

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