Analysis by Willis Towers Watson finds the current formula is causing higher premium rates, reduced competition and poor value for consumers
LONDON, Thursday 16 March, 2017 — Willis Towers Watson has responded to a European Insurance and Occupational Pensions Authority (EIOPA) Discussion Paper on the upcoming review of Solvency II, where it has identified significant flaws in the formula used to calculate the risk margin and recommended a fundamental review of its methodology and calibration.
Kamran Foroughi, Director at Willis Towers Watson, said: “We believe the high level of risk margin currently attached to long-term insurance products is resulting in higher premium rates and reduced competition, leading to worse value for consumers.”
Willis Towers Watson’s submission notes that the risk margin has become a much more material component of insurers’ balance sheets, leading to a number of challenges and changes in business practice, including:
• Asset Liability Matching. Insurers’ ALM challenges related to risk margin have been exacerbated by falling interest rates.
• Risk transfer. The bigger the risk margin relative to the rest of the technical provisions, the more insurers are incentivised to offload risk to reduce the risk margin.
This can be done via reinsurance to a company outside the EU which is not bound by Solvency II rules. Continue reading Flawed Solvency II risk margin is hurting consumers
Providers in the UK would be ‘world leaders’ in digital distribution if they had not spent so much on meeting regulatory requirements, according to Legal & General chief executive Nigel Wilson.
Speaking during a panel debate at the Marketforce Distribution Innovation in Pensions and Investments conference, Wilson (pictured) said the cost of regulation has stopped providers from investing in advice.
‘The retail distribution review (RDR) was a good thing but has cost a fortune to implement…and created an advice gap in the UK which we have to now see as an opportunity,’ he said.
Continue Reading “L&G: UK providers would be ‘world leaders’ without regulatory costs” at New Model Adviser
This announcement is in response to a European Insurance and Occupational Pensions Authority (EIOPA) consultation on the potential harmonisation of frameworks for insurers.
The lobby group said in its position paper that Solvency II already allows early intervention when either the Minimum Capital Requirement (MCR), or the Solvency Capital Requirement (SCR) are breached, and that this is sufficient.
It states: “Insurance Europe believes it is important to reiterate that Solvency II already provides several safeguards that…
Continue Reading “Solvency II means no need for new EU insurance framework” at The Actuary
The implementation of Solvency II in Europe has provided an additional risk management tool to owners of European captives, but at a cost, forcing risk managers to re-examine whether they are getting the best use out of their captives.
Solvency II, the European Union-wide risk-based capital rules for insurers and reinsurers, came into force in January 2016, and with it came new elements that have affected captives, for better or for worse.
“What we’re seeing as managers is an increased interest in strategic reviews and companies re-examining the captives to explore optimization opportunities and thus potentially…
Continue Reading “Solvency II complicates captive strategies ” at Business Insurance News
On the face of it, the insurance covered agreement announced on January 13 should be everything Donald Trump detests. Signed in the final days of Barack Obama’s administration, when Trump had already been elected, the deal is between the US and the European Union – an institution the new president has repeatedly disparaged.
It will pre-empt the authority of individual US state legislators and require them to defer to EU regulation of European insurers in US markets.
On top of that, the agreement was negotiated by the Federal Insurance Office (FIO), an Obama-era creation Republican lawmakers are keen to abolish.
Continue Reading “Deal or no deal? US divided on EU insurance agreement” at Risk.net
Prudential Regulation Authority (PRA) chief executive Sam Woods has reportedly told parliament that insurance companies are overstating the issues regarding Solvency II.
Woods said on Wednesday before the parliament’s Treasury Select Committee that Solvency II is “basically a sensible regime,” Reuters reported.
However, he admitted that Solvency II, which sets out capital rules for EU insurers, needs some changes.
Continue Reading “PRA says insurers exaggerating Solvency II problems – report” at Insurance Business News
Talk of a lighter regulatory touch out of Washington has many in the financial services industry feeling optimistic; but for insurers, there may be reason to be wary of the ‘law of unintended consequences.’
A potential repeal, or rollback, of the Dodd-Frank Act may seem like a step toward lower regulatory burden, but in reality, only a handful of insurers — those designated as systemically important financial institutions (SIFIs), and those that own a depository institution — would feel its impact.
While few insurers are directly affected by the federal bodies established by Dodd-Frank — notably the Financial Stability Oversight Council (FSOC) and Federal Insurance Office — they are all regulated by the states, which have historically taken the lead on overseeing the insurance industry.
Continue Reading “State insurance regulators may flex muscles amid federal rollback” at The Hill
The Bank of England has dealt a blow to UK insurers hoping for a quick fix to what they see as the most onerous aspects of EU capital requirements.
The insurance industry has been campaigning for a more lenient interpretation of EU rules known as Solvency II. Some insurers have accused the central bank of “gold plating” the regulatory regime, which is supposed to be applied equally across the EU.
But in a speech to the Association of British Insurers on Tuesday, David Rule, the BoE’s head of insurance supervision, said its implementation of Solvency II had been “robust but proportionate” and played down the potential for immediate changes.
Continue Reading “Bank of England defends implementation of Solvency II rules” at Financial Times