here has been plenty of controversy surrounding the EU’s impact on UK insurance laws in recent weeks. Last week we revealed that uninsured drivers are to get compensation under a new EU rule; and now a report has outlined some even more significant consequences of the EU’s regulation.
Annuities have, reportedly, become more expensive as a result of Solvency II – and that means that people are needing to work longer before they are able to retire.
The statement was made as part of a hearing at the Treasury Select Committee on the impact of Solvency II as the industry looks to relax some areas of the regime post-Brexit.
Continue Reading “Are insurance rules making people work longer?” at Insurance Business News
There’s a buying opportunity at UK listed assurance and savings group Legal & General thanks to market concerns that have pushed its share price lower.
The group had a strong year in 2015, with divisional operating profit rising by about 15 per cent.
L&G, which is leveraged to savings growth in the UK, also upped dividends by 19 per cent.
But while the headline numbers were solid, investor focus is on new Solvency II capital requirements.
There has also been disquiet about the company’s exposure to “weak” sectors, such as resources, in the annuity bond portfolio.
Continue Reading “Legal & General’s overblown market sell-off presents buying opportunity” at Financial Review
Global Credit Research – 10 Dec 2015
Paris, December 10, 2015 — According to Moody’s Investors Service, reported Solvency II ratios will not always reflect economic capitalisation of insurers. In fact Solvency II ratios may underestimate or overestimate insurers’ actual economic capitalisation because of the challenges in calibrating all risks on a pure economic basis at a 99.5% confidence level and the impact of the transitional measures agreed to smooth Solvency II implementation. As a result, the emphasis that Moody’s will place on Solvency II ratios in its assessment of insurers’ capitalisation will vary, notably by category of insurer.
Moody’s report titled “European Insurance: Solvency II Ratios Will Not Always Reflect Economic Capitalisation” is now available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release.
In the Solvency II Directive, which comes into force on 1 January 2016, capital requirements are defined as the amount of resources needed to absorb all economic losses with a probability of 99.5%. “On the basis of this economic approach, we have evaluated that a 100% Solvency II ratio is consistent with a low Baa level of capitalisation and a 200% ratio is consistent with a low Aa level of capitalisation”, said Benjamin Serra, Moody’s Vice President and Senior Credit Officer. “However, the calibration process and transitional measures have partly taken the Solvency II ratios away from a pure economic view”, added Mr Serra.
Continue reading Announcement: Moody’s: Solvency II ratios will not always reflect economic capitalisation
The UK annuity market will grow a further £5bn ($7.5bn) in 2016, despite concerns about pricing volatility arising from Solvency II regulations, according to financial consultancy Lane Clark & Peacock (LCP).
Concerns about pricing in relation to pension scheme buy-ins and buy-outs have been growing and stem from the provisions required for long-term guarantees under the incoming Solvency II regime.
Financial services firm PwC in August estimated that, in a worst-case scenario, insurers could expect to pay an extra 10% on defined benefit pension scheme buy-outs.
Continue Reading “UK annuity market to grow £5bn in 2016” Insurance ERM News
London – Monday 26 October, 2015 – UK life insurers report major changes in how they are having to assess and measure longevity risk within Solvency II internal models, according to research by Towers Watson.
In its annual study of risk calibration methodologies*, which received responses from the majority of UK life insurers seeking internal model approval, Towers Watson found that six firms strengthened their longevity risk calibrations by at least 20%†.
Tim Wilkins, a senior consultant at Towers Watson, said: “The approval process for Solvency II has been very painful for insurers and the survey results show some have had to make major changes to their models, but the next step for those who do get across the line in January 2016 will be just as critical as they begin to embed and apply their internal models.”
Continue reading New rules raise the bar as life insurers optimise risk models
Deals involving transferring the risk of British company defined benefit pension schemes to insurers are likely to total 10 billion pounds ($15.35 billion) this year, down on last year’s record 13 billion pounds, consultants Aon Hewitt said on Monday.
These “bulk annuity” deals are a good source of income for UK life insurers, particularly after government pensions reform has at least halved the sale of individual annuities.
For companies, the deals remove the headache of running the pension schemes.
Years of low interest rates mean many schemes are in deficit and these sometimes need to be filled by the company before the life insurer takes on the risk.
Continue Reading “UK company pension insurance deals seen totalling 10 billion pounds in 2015 – Aon Hewitt” at Reuters News
Fitch Ratings says in a new report that major UK life insurers are on track for strong capital positions under Solvency II, and significant growth in the income drawdown and bulk annuity markets will offset declining individual annuity sales.
The rating Outlook for the sector is Stable, reflecting the diverse businesses and strong capital of the major insurers – important factors underpinning their ratings.
Solvency II calculations are still subject to regulatory conclusions on companies’ internal models, and several insurers are still working on restructuring certain asset portfolios, e.g. equity release mortgages, to be eligible for the matching adjustment.
However, we expect that negative regulatory surprises will be limited, transitional measures will soften the impact, and some insurers will report particularly strong Solvency II capital, which may lead to pressure from shareholders for M&A or higher dividends.
Continue Reading “Fitch Dashboard: UK Life Sector Set for Strong Solvency II Capital” at Reuters News
Average annuity rates have fallen again during the third quarter by 2.4 per cent and will now pay more than £2,000 less over the course of a retirement than at the time of the Budget in March, according to MGM Advantage’s latest index.
Average standard annuity rates fell by 3.01 per cent in the third quarter, while enhanced rates fared slightly better, reducing by 1.88 per cent over the same period.
The average annuity today of £3,074 per year (based on a £50,000 purchase price) would pay £2,058 less income over an average retirement, compared to the equivalent annuity purchased in March which paid an annual income of £3,172.
Continue Reading “Annuities Pay £2,000 Less over Retirement Since Budget” at FT Adviser News
Annuity rates could fall between 5 to 20 per cent depending on the outcome of Solvency II negotiations, according to Deloitte.
The Solvency II rules, designed to align the treatment of insurance across Europe, could force annuity providers to hold significantly more reserves and switch from investing in corporate bonds to lower-yielding assets, Deloitte claimed.
The business advisory firm estimates that in the best case this could reduce annuity rates by 5 per cent, but might lead to a fall of up to 20 per cent.
Continue Reading “Deloitte Warns Annuity Rates Could Fall 20%” at FT Adviser News