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.
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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.
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