The EU regulatory regime comes into force today, but it will take a long time before firms enter a business-as-usual environment
After more than a decade in the making, Solvency II comes into life today. For the first time, insurers across Europe will be subject to the same set of regulations, even if they answer to different national supervisors.
2015 was crunch time for insurers. The applications to use internal models and other optional elements of the directive were a key part of firms' preparations, and made clearer the industry's strengths and vulnerabilities.
The steep fall in value of Delta Lloyd's shares during the summer, following a setback in discussions with the hardnosed Dutch Central Bank, was one of the news stories of the year, and it fuelled concerns about the impact of the capital rules.
Investors will pay close attention to insurers' first quarter regulatory fillings, the first under the new regime, to determine whether or not the Dutch insurer was an exception.
In 2015, the low interest rate environment continued to act as slow poison on insurers' balance sheets, especially those with large back books of guarantees, despite the return of volatility to bond markets.
Significant changes in insurers' investment portfolios are expected during the course of 2016, as firms take action to increase the return on capital and accelerate the shift into high yielding alternative assets.
As far as regulation is concerned, EU policymakers delivered the final pieces of the puzzle of the Solvency II framework in 2015. With the exception of Greece, Cyprus and the Czech Republic, all member states have tranposed Solvency II into national legislation.
However, regulatory change will go on through 2016. In the context of the capital markets union, the European Commission is poised to amend the charges that apply to safe securitised products. Further equivalence decisions may be issued, including those covering the US, which has entered negotiations to complete a covered agreement on the reinsurance collateral and other issues.
A major topic for 2016 will be the review of the ultimate forward rate and the initial discussions on the introduction of a countercyclical capital tool for insurers, as requested by the European Systemic Risk Board.This will go hand-in-hand with discussions at global level to develop capital standards for the industry, in particular for those insurers deemed systemically important.
Solvency II is live, but the months and years ahead will be anything but business-as-usual.
Here is a list of our 10 most read stories of 2015
- Non-life insurers eye Solvency II volatility adjustment – 10 April
- Dutch insurers derailed by Solvency II surprises – 20 August
- National regulators at odds about Solvency II volatility adjustment – 22 January
- An alternative to the three lines of defence – 17 February
- Aviva CEO not impressed by £400m Solvency II spend – 6 August
- Commission sets timeline for equivalence decisions – 20 February
- Solvency II equivalence under threat – 6 February
- QE reveals deception of the Solvency II curve – 10 February
- How a 100% SCR stopped being sufficient capital – 12 November 2015
- Reinsurance is flexible and cost effective for Solvency II capital needs – 2 April
