The new Solvency II regulations will transform the insurance industry
Author: Jamie F. Sullivan
The new legislation of Solvency II will act as a catalyst for transforming the insurance industry, according to a report released today by Oliver Wyman and Morgan Stanley
Oliver Wyman and Morgan Stanley have today published the report “Insurance: Solvency II, Quantitative & Strategic Impact: The Tide is Going Out” (Insurance: Solvency II Quantitative Impact and Strategy: The tide comes in), which concludes that the effect will the new Solvency II regulations will go beyond reductions in capital ratios and will act as a catalyst for transforming the insurance industry. The report argues that Solvency II, the new EU regulation for the insurance that aims to improve the relationship between regulatory capital and the real economic risk of the insurance companies will have a profound strategic impact on the sector and lead to a revision of model traditional business. Also states that opportunities for mergers and acquisitions will come from the greater transparency in companies’ balance sheets and the consequent distinction between businesses with a high risk profile of those with a sustainable flow of benefits. Therefore, the need for insurers to change their current product mix, reaching a diversified business model and a volume sufficient balance, act as a driver of new business mergers and acquisitions.
Oliver Wyman and Morgan Stanley say the insurers’ management teams will focus on restructuring the existing portfolio of products, from traditional products to products such as “unit-linked” or “variable annuity.” In addition, more effort will be made in the asset and liability management (ALM), (ie coverage of investment, risk management and reinsurance …).
The report applies its own model of Solvency II to determine the impact of new regulation on four fictitious insurance companies based in Europe: one with global presence and activity in the fields of life and not life, a life insurer with a global presence , a reinsurance company and a life not only more local. Taking everything into account, the results show that highly capitalized reinsurers will be those that most benefit from Solvency II, due to the potential demand for each other without access to alternative sources of capital and an increase in the use of reinsurance as a tool to mitigate risk profile. The model suggests that small insurers and concentrated in a small geographic area (including many societies), it will be more difficult to adapt to the changes of Solvency II, which can not benefit from the positive effects of diversification, both geographically product will have on the capital base of insurers under Solvency II.
“Solvency II will bring to light the true balance of economic volatility in many European insurance companies and, while we support the new regulatory framework in the short term we think that this could lead to higher cost of capital,” said John Hocking, head of the team Insurance Sector Analysis of Morgan Stanley in London. “We hope that insurers adopt management techniques more sophisticated, to optimize profitability and economic capital.”
“Our analysis clearly shows that some business structures are inefficient from the standpoint of capital,” said Lukas Ziewer, Partner, Insurance Practice at Oliver Wyman. “Some groups still operate in the same market through several companies, to serve different brands, for example. Whereas today the consolidation of insurance between different European markets is complicated, Solvency II is to lay the groundwork for encouraging that process. In summary, we expect limited short-term effect on the major European insurance companies, but further optimization of the intra-group reinsurance capital through leverage and capital structures. ”
The report includes a summary on how insurers can adjust their corporate structure to benefit from the new Capital Adequacy Requirements (“Solvency Capital Requirements” or “SCR”). There are three main factors to achieve: the consolidation of subsidiaries into a single legal entity, use of internal reinsurance and the introduction of leverage in the capital structure of the group.
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Sehe das schon so.. ach ja könnte man sich anständig wissen einholen bevor man zu derartigen Relationen kommt .