Guy Carpenter & Company announced the publication of Succeeding Under Solvency II - Special Considerations for Reinsurers and Counterparty Risk, the third report in the firm’s series on Solvency II preparedness developed for re/insurers operating in or covering risks in Europe. The first two reports addressed re/insurance industry requirements and key issues under Pillars I, II and III.
The new report examines:
Potential risks to cedents arising from Solvency II, including:
- How the regulatory burden of the supervisory authorities to implement and maintain Solvency II likely will affect policyholders and cedents.
- How the different approaches to assessing capital requirements under Solvency II by large, rated reinsurance groups, smaller, unrated reinsurers and niche reinsurers might impact each other as well as the overall marketplace.
- Why reinsurers and cedents are likely to experience more intense and volatile underwriting cycles as capital is more closely calibrated to risk.
Positive developments for cedents under Solvency II, including:
- Why transitional periods introduced in the Omnibus II Directive should limit market disruption.
- Why greater transparency and convergence in reporting is expected among Solvency II and equivalent regimes.
- Why a stronger, deeper insurance linked securities (ILS) market may emerge as Solvency II goes into effect.
- Why the overall health of the global reinsurance market should improve.
Strategies for managing counterparty default and credit risks
Peter Stubbings, Managing Director, stated, “Solvency II is an ambitious undertaking, with the ultimate goal of making the global insurance industry more transparent and robust. As to be expected of initiatives of this scale, the new regulatory program has met its share of resistance and criticism, resulting in a gradual dilution of requirements and lengthening of deadlines to soften the impact. Nevertheless, the most prudent companies are well underway in their preparations for the official January 2013 implementation date of the new regime.”
David Flandro, Global Head of Business Intelligence, added, “We anticipate that the rules under Solvency II will undergo further changes before becoming law and that the overall tenor of these changes will be dilutive. However, there is no avoiding the fact that the way in which risk is viewed and managed in the European marketplace will change fundamentally under Solvency II, with important implications for any reinsurer or cedent with ties to this market.”