Insight Report: Solvency II - Beyond Implementation

Insight Report: Solvency II - Beyond Implementation

  • July 2016 •
  • 45 pages •
  • Report ID: 3971349 •
  • Format: PDF
Timetric’s 'Insight Report: Solvency II – Beyond Implementation' analyzes the developments in the insurance industry following the implementation of Solvency II on January 1, 2016.

Most insurers in Europe region have found taht their risk management and governance strategies have improved as a result of Solvency II. Moreover, the regime prepares the ground for a single insurance market across Europe, enabling insurers and reinsurers to operate under the same set of regulations.

It will increase the competitiveness of insurers and reinsurers, and provide the same level of consumer protection throughout the European insurance industry.

The report also discusses in detail Solvency II's impact on insurers’ operations and investment activities. The new risk-based regulatory regime impacts day-to-day operations such as product development, pricing, investment and strategy. The impact will vary in each country depending on insurer’s business lines, reserves and investment policies.

Timetric’s “Insight Report: Solvency II – Beyond Implementation” conducts a detailed analysis about the current state of Solvency II. It provides:

- An overview of the Solvency II Directive, and discusses important features in terms of capital adequacy, supervision and disclosure.

- Fundamental analysis of risk-based regulatory approach in insurance industry, and an understanding the significance of Solvency II to stakeholders in the insurance industry.

- Analysis of market opportunities and challenges faced by insurers and reinsurers following the implementation of Solvency II.

- An understanding of Solvency II's impact on insurers' business models, including product lines, pricing, investments and strategy.

- The report discusses in detail the intricacies related to the high capital requirements under Solvency II, and also explains how elements of volatility adjustment, matching adjustment and ultimate forward rate can influence the solvency capital requirement.

- It analyzes the impact of Solvency II on insurer’s investments, including the effect of capital charges on insurers' capital.

- It discusses the cost and complexity of Solvency II. It also describes challenges with respect to data requirements to meet the objectives of all three pillars of Solvency II.

- It builds understanding of the decision process, and types of Solvency II equivalence.

Reasons To Buy
- Gain an understanding of transitional measures that can be used to reduce the impact of Solvency II in the short term.

- Understand opportunities and challenges to optimize investment returns under the Solvency II regime.

- Develop an insight into the impact of Solvency II on life insurance, non-life insurance, and reinsurance.

- Understand the global impact of Solvency II on European insurance and reinsurance groups operating outside Europe, and Non-European insurance and reinsurance groups operating in Europe.

Key Highlights
- The capital requirement to cover insurance liabilities has increased substantially under the risk-based capital regime of Solvency II. Most of the increase in solvency capital requirement is due to market risk. It alerted insurers to rethink their business models, particularly small insurers, monoline insurers and annuity providers.

- Solvency II has extensive data requirements for insurers and reinsurers to meet the objectives of all three pillars: capital adequacy, supervision and disclosure. A vast amount of data needs to be processed, filtered and presented in a particular format when calculating solvency capital requirements. The documentation of the disclosure process, using SFCR, RFR and QRTs, is also proving to be cumbersome.

- The impact of Solvency II will not only be limited to the EU, but also have a global reach. Insurers headquartered in the EU and with a global presence will have to either comply with the Solvency II provisions or adopt them. Responsibility lies with insurance regulator of the third country to transpose delegated acts into their regulated regime.

- Solvency II challenges the ability of an insurer to construe an investment strategy which can optimize the rate of return on investments. Capital charges can act as a defining factor in insurers' investment operations. Assets such as equities, real estate, structured products and corporate bonds, which are perceived to be riskier, will attract higher capital charges.

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