Tag Archives: Risk

EDHEC: Solvency II Prudential Regulation – An Impediment To The Return Of Insurers To The Property Market

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

European growth, regulatory changes drive asset moves

The recovery of the European economy — combined with moves by regulators to free up potential sources of return — is leading to a paradigm shift in asset allocation. But conflicting regulatory regimes could curtail some of the opportunity, sources said.

European pension funds’ investing patterns are beginning to change, thanks to a lifting of asset allocation restrictions across the Continent that is coinciding with the long-awaited recovery in the European economy and a changing global interest rate environment.

The global financial crisis left asset owners in Europe with no appetite for more volatile asset classes.

And European pension funds historically were heavily invested in fixed-income instruments.

Continue Reading “European growth, regulatory changes drive asset moves” at Pensions & Investments

Moody’s assigns Ba2(hyb) rating to RSA’s SEK2.5 billion/DKK650 million perpetual contingent convertible notes

London, 24 March 2017 — Moody’s Investors Service has today assigned a Ba2(hyb) rating to the SEK2.5 billion/DKK650 million perpetual restricted Tier 1 contingent convertible notes (“notes”) to be issued by RSA Insurance Group plc (“RSA” or “Group”; backed subordinated rating Baa1(hyb), stable outlook).

Moody’s approach to rating “high trigger” contingent capital securities is described in its Global insurance rating methodologies (Global Property and Casualty Insurers: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_190302).

The notes rank junior to RSA’s senior creditors (including Tier 2 capital) and existing preference shares, but they rank senior to common shares. Coupons may be cancelled on a non-cumulative basis at the issuer’s option and on a mandatory basis if the Group’s solvency capital requirement is breached.

Continue Reading “Moody’s assigns Ba2(hyb) rating to RSA’s SEK2.5 billion/DKK650 million perpetual contingent convertible notes” at Moody’s

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

Mutual LV= weighs merger or disposals as capital rules bite

One of Britain’s largest financial services mutuals has been involved in a secret hunt for a merger partner as a combination of tougher capital requirements and low interest rates hamper its profitability.

dddvtureSky News has learnt that LV=, which has nearly 6m UK customers across insurance, pensions and income protection products, has held aborted talks in recent months with Royal London, its fellow mutual, about a possible tie-up.

Those talks are said to have broken down amid a disagreement over the structure of a deal.

Continue Reading “Mutual LV= weighs merger or disposals as capital rules bite” at Sky News

Solvency II complicates captive strategies

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.confused-face-484x295

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

Bank of England defends implementation of Solvency II rules

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 indexinterpretation 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

Insurers warn of Solvency II impact

The capital regime for the insurance industry needs “fundamental” review, a committee of MPs has been told.

Legal & General and Prudential both appeared before the Treasury Select Committee yesterday (25 January) to criticise the Solvency II regime.

The cross-European regime came into effect a year ago and sets out how much capital insurance companies must hold to reduce the risk of insolvency.

Continue Reading “Insurers warn of Solvency II impact ” at FT Adviser News

At risk: the global nature of reinsurance

Local rules plus the effects of Solvency II may be limiting access of countries to the benefits of reinsurance, and this is a problem that needs fixing, says Frank Nutter of the Reinsurance Association of America.global-hands

Restricting access to reinsurance can have serious consequences for society. Take, for example, a big earthquake in Chile or in New Zealand of the recent past, where the influx of reinsurance after the event allowed for a remarkable restoration of the economy.a

If you localise reinsurance and don’t place the risk to global markets, as it is happening particularly in certain parts of Asia, you effectively exacerbate the problem. In addition to having to cope with the destruction of infrastructure, those countries may end up with a debilitated local re/insurance industry.

Continue Reading “At risk: the global nature of reinsurance” at Intelligent Insurer

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%.