A major review of the Solvency II regulation governing the solvency capital requirements of European insurers should ensure the sector remains fully resilient to future market shocks. Here are the main points from our new paper “Solvency II – Adjusting the dial, but no revolution”.
The aim of the review is not to undermine the insurance industry’s solvency, which is reasonably strong and has withstood the effects of the Covid-19 crisis well.
Rather, the proposed amendments are intended to better align Solvency II with:
- Market realities, for example, a low return environment and associated risks
- Insurers’ long-term investment horizon and their significant role as contributors to the economy
- The particular nature and credit sensitivity of individual companies
- Reducing the industry’s sensitivity to market fluctuations
- Being better able to deal with risks such as those linked to climate change.
Overall, the proposed measures could free up as much as EUR 90 billion of capital in the short term.
That said, as measures such as those concerning the discount curve and interest-rate shocks look set to raise insurers’ capital requirements, the actual amount of freed capital will likely be EUR 30 billion over the long term.
Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.