New approach required for unit matching in the Solvency II world to maximise capital efficiency, according to George McCutcheon, Director of Research, Financial Risk Solutions (FRS).
In order to maximise capital efficiency in the new Solvency II world, Life companies will face a choice with regards to their unit matching process. Under the new regime, coming into effect in January 2016, technical provisions for unit-linked business can be lower than the face value of policyholders’ unit-linked liabilities. This is a fundamental change from the existing Solvency 1 controls, which are predicated on the face-value of policyholders’ unit-linked liabilities.
Therefore new system capabilities will be required to support this new approach, which is driven by capital efficiency considerations.
Continue Reading “New Approach to Unit Matching in Life Companies” at Actuarial Post
LONDON — A.M. Best believes it would be premature to draw negative conclusions from the most recent Solvency II stress tests conducted by the European Insurance and Occupational Pensions Authority (EIOPA) and does not anticipate any rating implications at this stage.
In the Best’s Briefing titled “A.M. Best Comments on Results of EIOPA’s Insurance Stress Test,” A.M. Best notes that the results (published on Nov. 30) stated the insurance sector was “in general sufficiently capitalised in Solvency II terms.”
However, the survey showed 14% of companies (representing 3% of total assets) had a Solvency Capital Requirement (SCR) ratio below 100%. Furthermore, in a prolonged low-yield scenario, 24% of insurers would be unable to meet their SCRs and “certain companies” could face…
The EIOPA released the results of a test that it conducted on the sector and showed a “double hit” could be painful.
Recent insurance industry news from the European Insurance and Occupational Pensions Authority (EIOPA) has revealed the results of a form of “stress test” that it conducted and which has now shown that this sector has a higher vulnerability to a stress scenario in which there would be a “double hit” combination of a decrease in asset values and a reduced risk free rate.
Overall, the testing showed that the sector as a whole is adequately capitalized in terms of Solvency II requirements.
Continue Reading “Insurance industry news in Europe reveals considerable stress vulnerability” at Live Insurance News
European regulators are weighing up bringing forward a planned review of Solvency II capital charges, in an attempt to unlock insurers’ investment in infrastructure and other long-term assets.
This comes weeks after the European Commission assumed that private investors will be called on to stump up €284bn ($305bn) needed to deliver on its strategy to revive growth.
The capital charges for investments are laid down in Solvency II delegated acts, which were adopted only in October. Regulators introduced some eleventh-hour changes in the text to lure insurers to invest into securitisations, but deferred cuts in infrastructure charges until a planned review in 2018.
Continue Reading ” Infrastructure charges could be reviewed early, hints Commission” at Insurance Asset Risk News
Fitch Ratings says that it expects to see an increase in merger and acquisition activity, across the insurance and reinsurance industry, as market participants come to terms with lower profitability and see M&A as a faster route to growth or an improved capital position.
The recent announcement of Bermuda-based reinsurance firm RenaissanceRe’s agreement to acquire Platinum Underwriters could spur merger and acquisition activity among reinsurers, Fitch Ratings says. While this deal itself is not a blockbuster, Fitch says, it may provoke a shift in market attitude to embrace more consolidation as a strategic option to combat the current challenges facing the reinsurance market.
Continue Reading “Insurance and reinsurance mergers and acquisitions to increase: Fitch” at Artemis News
Low reinvestment rates could cause major problems for European insurers, with one in four insurers expected to fall short of capital if low interest rates persist.
The European Insurance and Occupational Pensions Authority (Eiopa) released the results of its EU-wide industry stress tests on 30 November, the first conducted on a Solvency II basis.
Eiopa estimates that some insurers would have problems fulfilling their obligations in eight to 11 years’ time, as cash flows turn negative.
Austria, Germany, the Netherlands and Sweden were identified as the most vulnerable countries because of the duration and return rate mismatch in balance sheets
Continue Reading “EU Stress Test Reveals Asset Risks” at Insurance Asset Risk News
The shaky economic recovery around the world is eroding profitability for Asian insurers, prompting them to take on more investment risk, particularly in private asset classes, to improve yield.
This transition requires insurers to step outside their comfort zone at a time when resources are already stretched by increasingly demanding regulatory requirements.
BlackRock commissioned the Economist Intelligence Unit to gauge how insurers were responding to the pressure on their fixed income portfolios, and whether they saw higher-yielding private assets as an investment opportunity to move up the risk spectrum.
Continue Reading “Asian insurers consider higher-yielding private assets to drive returns” at The Korean Herald
Less than two months after the adoption of the Solvency II delegated acts, insurers are gearing for the restart of the lobbying campaign to ease the rules for investing in infrastructure.
The industry is pinning its hopes on the looming discussions about Europe’s growth plans to secure concessions before the new regulatory regime comes into force in 2016.
European Commission president Jean-Claude Juncker on 26 November unveiled a giant plan to pump about €315bn ($393bn) into the economy through investments in infrastructure, but it is counting on private investors to foot the largest share of the bill.
Trade body Insurance Europe welcomed the plan, but it hinted at the need to revise regulations to facilitate investment.
Continue Reading ” Insurers pin hopes on ‘Juncker plan’ to ease infrastructure investment” at Insurance Asset Risk News
Although the fines and negative publicity of non-compliance for payments companies is well known, a new report from Thomas Reuters finds a laundry list of related—and far larger costs. Companies seeking to avoid additional government interference are finding non-compliance all but guarantees much more strict oversight.
Regulators have been “encouraging banks in particular to rebuild their balance sheets. While an instruction to a firm to hold more capital, liquidity or solvency is unlikely to be made public, regulators have been clear that they can and will use the powers or regulatory toolkits available to them to take early action to prevent a firm from failing.
Measures range from enhanced supervisory protocols, increased capital and solvency risk-adjusters in pillar 2 of either Basel or (in Europe) Solvency II, to the higher international capital requirements for global systemically important financial institutions,” the report said.
Continue Reading “The Soaring Cost Of Non-Compliance” at PYMNTS News