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
Obtaining accurate look-through data on fund of funds investments is set to be the second great Solvency II hurdle facing insurers and asset managers, leading look-through data utility Silverfinch has argued in its 2015 review.
The report states that the advent of Solvency II means that asset managers are facing immediate and increasing pressure from insurers to help them meet the challenge of look-through data for fund of funds investments
A significant number of Europe’s 5,000 regulated insurance firms are yet to engage with fund managers on the collection of asset data, the review also notes.
Continue Reading “Fund of funds data will be stage 2 of Solvency II journey” at Bob’s Guide
European insurers are uncertain about the ability of asset managers to help them make enough investment returns to be able to meet guaranteed rates for their policy holders.
Research shows that insurers are concerned about fund management capacity and the ability of third-party investment firms to meet complex investment requirements.
The research into insurance asset management, conducted by Standard Life Investments, is the most comprehensive to date, the firms says. It covers insurers with €2.4 trillion of assets under management, which is 30% of pan-European insurance assets.
The low-return environment, and the way the EU Solvency II directive affects investment freedoms, are the causes.
Continue Reading “Credible asset management partners “declining”, say insurers” at Funds Europe
From January 2016, European insurance companies face a new dawn: one regulatory framework to rule them all, including a mark-to-market valuation of assets and liabilities, together with forward-looking capital requirements, that could destabilise solvency levels.
Market-watchers are split over whether companies are taking the introduction of Solvency II in their stride. Optimists point to the progress already made on solvency ratios, as well as dovish sentiments from regulators, as reasons not to be fearful.
The analysts at Barclays are not so confident. “We would caution that the improvements have been mostly generated by market movements and as such remain entirely outside of companies’ control,” ran a recent note.
Continue Reading “Staring down the barrel of Solvency II” at Investors Chronicle
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
Choosing not to adopt the tripartite data exchange table for asset data reporting requirements under Solvency II would be “narrow and short-sighted”, according to a report by Silverfinch.
The asset data management firm surveyed insurers, asset managers and regulators across Europe for its paper, The European race to the Solvency II finish line, and found that the popularity of bilateral agreements between insurers and asset managers for bespoke asset data could come at a cost to insurers further down the line.
“It’s quite obvious that a plethora of separate agreements, and separate data models, between various insurers and asset managers will add greatly to the cost of the transfer of data in the long run,” the report said.
Continue Reading “Short-sighted” insurers urged to adopt SII tripartite model” at Insurance Asset Risk News
In addition, the report says, a new subset of the asset management industry will appear which will attract the lion’s share of the trillions of pounds worth of European insurance funds under management.
Far from being just an imposition on the insurance industry, the new regulations, which require insurers to identify and list out underlying holdings, are as much of a burden on the asset managers who look after money for insurance groups.
However, the regulations, which come into effect on 1 January 2016, also open up a significant opportunity to build assets. Insurers have to be able to look though fund holdings to detail their underlying investments, a task that only the asset manager can do on their behalf.
The study, which was completed following discussions with hundreds of insurers and asset management groups, shows that insurers are likely to be attracted to those asset managers who have established processes in place already and who are prepared and best able to meet these new requirements.
Continue Reading “New study shows how fund managers can boost their assets under management” at Automated Trader News
In a report published yesterday, the ratings agency said the new rules governing Europe’s insurance industry would not necessarily result in higher solvency ratios – the size of their capital relative to premiums written – but it could lead to more complexity, making it harder for insurers to access capital.
‘In most jurisdictions the volatility in current Solvency I ratios is easy to understand and essentially tracks changes in the market value of assets,’ it said. ‘On the contrary, under Solvency II, solvency ratios’ volatility will be more difficult to interpret and changes in solvency ratios will not be easily understood without a clear understanding of the details of the ratios’ computation.’
Continue Reading “‘Complex volatility’ of Solvency II Could Put Off Investors, warns Moody’s” at The Actuary News
Asset management firms on both sides of the Atlantic face a steep hurdle in order to comply with new European Union capital adequacy and risk management rules for insurers, called Solvency II.
Solvency II requires insurance companies to prove they have enough capital funding to prevent them from failing, placing a significant reporting burden on asset managers who will be required to provide unprecedented levels of transparency on the investments of their insurance company clients.
While Solvency II is of European origin and primarily targeted at the insurance industry, it has global implications for the asset management community.
Continue Reading “Solvency II Challenges U.S. Asset Managers” at CME Group News
ASSET managers face a culture shock following the implementation of the European Union’s Solvency II directive, according to research released yesterday by KPMG.
The heavily trailed reforms will require insurers to hold increased levels of capital by 2014, as well as implementing an improved level of financial disclosure.
But a report commissioned by the European Fund and Asset Management Association suggests that although insurers are well prepared, asset management firms need to work harder to meet the same standards.
Continue Reading “Asset Managers Face Challenge of Solvency II” at City A.M.