In a position paper entitled “The Impact of Solvency II Prudential Regulation on Property Financing in the Insurance Industry”, the Financial Analysis and Accounting Research Centre and the Economics Research Centre at EDHEC Business School conduct a critical analysis of the calibration of property risk under Solvency II prudential regulation.
This study, conducted in partnership with the French Ministry for Housing, tests the robustness of the calculations for two key elements within the Solvency II calibration – the size of the property shock (Value-at-Risk) and the correlation of real estate with other asset classes.
The challenge of this analysis is sizeable given that the European insurance sector currently has €10 trillion worth of outstanding investments.
Continue Reading “EDHEC: Solvency II Prudential Regulation – An Impediment To The Return Of Insurers To The Property Market” at Mondo Visione
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
As the UK government continues to develop and advance its ambition of turning London into a global hub for insurance-linked securities (ILS) business, international law firms have highlighted some uncertainties and potential shortcomings of the new guidelines.
The establishment of an ILS hub in the United Kingdom has the potential to expand the reach and influence of the ILS marketplace, while increasing the relevance and position of London as a global hub for insurance and reinsurance business.
Fist discussed in March 2015, the UK Treasury has now published its draft proposals for the framework, with the UK’s financial regulators, the Prudential Regulation Authority (PRA) and the…
Continue Reading “Law firms highlight potential issues with UK’s draft ILS regulations” at Artemis
Is it possible for regulators to become too heavily involved in the insurance business? One giant of the UK insurance sector seems to think so. Legal & General has accused a regulator of becoming increasingly interventionist in their control of the industry believing that their role should be cut back.
Specifically, it highlighted the position of the Prudential Regulation Authority (PRA) in relation to Solvency II rules stating that it is “effectively overruling the judgment of the board” in relation to setting capital requirements; and that it has started to take an increasingly “directive” approach in regards to transaction approval.
“Boards do not feel empowered to make commercial decisions without reference to the regulator,” it said in a submission to the Treasury Select Committee.
Continue Reading “Time to scale back the role of insurance regulators?” at Insurance Business
In an update of its supervisory statement, the regulator says such firms occasionally approach them with requests to withdraw capital.
The PRA recognises that these requests may be legitimate in certain circumstances, but points out that the move “inevitably” weakens the level of protection available for remaining policyholders.
“This is of particular concern for the PRA in respect of firms in run-off, since these firms, compared to other insurers, may have more limited access to further capital, and often have fewer management actions available to them to restore capital levels if the need subsequently arises,” said the PRA in the statement.
“For example, the financial position of such firms can be adversely affected by unexpected reserve deterioration as new risks emerge or through changes in the expected frequency or severity of known risks.”
Continue Reading “General insurers need thorough review on capital extraction when firms run-off, says PRA ” at The Actuary News
According to Moody’s Investors Service, the UK life industry is in a better position than a year ago despite radical changes to the retirement landscape following pension reforms.
Moody’s views the UK opting to leave the European Union (Brexit) as the main potential short-term risk to the stability of the sector.
However, the negative impact on insurers’ credit fundamentals is expected to be relatively modest, as Moody’s previously stated in a May report.
“UK life insurers are adapting well to the new environment and are generally well set up to exploit increased savings opportunities and the demand for risk products”, said Dominic Simpson, Moody’s Vice President and Senior Credit Officer. “This is notwithstanding regulatory and political headwinds which we expect to be a feature for some years”.
Continue Reading ” MOODY’S: Despite Radical Changes, UK Life Insures Are Adapting Well To Challenging LANDSCAPE ” at EconoTimes
All senior staff with “significant levels of responsibility” within large UK-regulated insurers should be subject to the same remuneration requirements, the Prudential Regulation Authority (PRA) has confirmed.
The regulator has issued a draft supervisory statement setting out its expectations of firms subject to the EU-wide Solvency II regulatory regime (22-page / 869KB PDF), after its own review of industry remuneration practices found that firms were confused about which staff were subject to the new rules and “significant discrepancies” in the ways in which they dealt with deferral of a certain proportion of variable pay.
In its statement, the PRA said that it was important that all firms applied the rules the same way in order to prevent a “race to the bottom”, in which firms were “able to compete for staff resources by adopting lower than the industry standard”.
Continue Reading “All Solvency II firms should apply remuneration requirements in the same way, says UK regulator” at Out-Law News
On 31 March 2016 the Prudential Regulation Authority (PRA) published a discussion paper asking for views from firms and market participants on equity release mortgage (ERM) valuation, capital treatment, risk management and matters connected with the restructuring of ERMs under Solvency II.
In particular, the PRA is seeking views on good practices for managing risks which may be unique to ERMs as an asset class.
ERMs are loans secured by way of a mortgage on a residential property where the loan is repayable upon the death of the borrower or the borrower permanently moving into long-term care.
ERMs allow borrowers to realise “residual value” in their property without having to sell the property.
Continue Reading “What does the PRA’s recent focus on longevity risk transfers mean for UK insurers?” at Lexology
UK non-life insurer Direct Line has submitted its application to use a partial internal model to calculate its capital requirements under Solvency II.
The application was sent to the UK’s Prudential Regulation Authority in December and the authority has six months to respond.
The insurer began 2016 using the standard formula and reported a solvency ratio of 147% as of 31 December 2015, post the dividend payment and assuming that expected changes to hedging arrangements were in place by that date.
The group internal model is expected to reduce the £1.68bn ($2.35bn) capital requirement and more accurately assess the company’s risk, but there will be no “step change” in capital requirement, said group chief financial officer John Reizenstein in the firm’s annual results call.
Continue Reading “Direct Line anticipates internal model approval by June” at Insurance ERM News
The chief executive of the Prudential Regulation Authority has been asked to find out what the cost of implementing Solvency II was to the industry.
Andrew Bailey, who will take over as chief executive of the FCA once a replacement can be found for him at the PRA, was asked to look into the cost of Solvency II by the chairman of the Treasury select committee Andrew Tyrie.
The request came during a hearing on the costs and benefits of Britain’s membership of the European Union.
Solvency II is a European-wide regulation that specifies the levels of capital that insurance companies must hold and was more than 10 years in the making.
Continue Reading “PRA chief must calculate cost of Solvency II” at FT Advisor