Tag Archives: Liabilities

Flawed Solvency II risk margin is hurting consumers

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 Willis-Towers-Watsonthe 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

Strong pipelines underpin uplift in de-risking market

Strong pipelines, greater engagement from smaller schemes and innovation driving improved buy-in affordability are some of the key developments expected to feature in the de-risking market in 2017, according to Willis Towers Watson.

EurosThe firm is predicting that over £30bn of liabilities will be insured in 2017, through buy-ins, buyouts and longevity swaps. This is a significant year-on-year increase, returning to the levels of activity observed in 2014 (£39bn) and 2015 (£18bn), following a slower 2016 (£11bn) as participants allowed for the bedding-in of Solvency II, back books distracted some market participants from new pensions transactions and events such as the referendum caused uncertainty and headwinds across the market.

Continue Reading “Strong pipelines underpin uplift in de-risking market ” at FTSE Global Markets

Aviva plans further £10bn infrastructure injection

Aviva plans to more than treble its investments in infrastructure — to £14bn — over the next five years as it seeks to boost returns amid rock-bottom interest rates.

In an interview with the Financial Times, chief executive aviva_1482150aMark Wilson said the insurer would invest an extra £10bn in infrastructure around the world, on top of the £4bn it has invested so far.

Insurers are increasingly turning to investing in infrastructure as an alternative to low-yielding government and corporate bonds. The long-term nature of infrastructure projects such as roads, energy plants, schools and hospitals, which pay out over years and decades, are a good fit for insurers’ long-term liabilities.

Continue Reading “Aviva plans further £10bn infrastructure injection” at Financial Times News

Medical aid solvency ratios need to change

The debate about the solvency ratio for medical aids is nothing new.

The legislated requirement of 25% needs to be revisited to better-health-insurance-coverage-through-obamacare-ftrmove away from the one-size-fits-all scenario.

The Medical Schemes Act No 131 of 1998 requires that medical schemes, “shall at all times maintain its business in a financially sound condition”.

This means that the medical scheme has sufficient assets for generally conducting it business, providing for its liabilities at all times and for meeting prescribed solvency requirements of 25%.