The macroeconomic environment continues to be top-of-mind among insurance leaders. With growth in global real gross domestic product (GDP) slowing from 4.1 percent in 2010 to 3 percent in 2011, insurance leaders continue to experience significant headwinds challenging profitable growth. As reported by Swiss Re, insurance overall direct premiums declined 0.8 percent in real terms in 2011. Nevertheless, pockets of opportunities do exist and will continue in the near term. Stabilizing social/political conditions, investments in infrastructure and demographic progression continue to fuel strong positive GDP growth and increasing insurance penetration in emerging economies. In these economies, overall direct premiums increased 1.3 percent in real terms in 2011, with non-life premiums increasing 9.1 percent.
Posts Tagged ‘Regulatory’
Paul Silberbush, Managing Director
Capital models are becoming more and more “embedded” into property and casualty (re)insurers’ business processes. These models are typically constructed with two distinct and often contrasting purposes: 1) measuring capital for rating agency and/or regulatory requirements and 2) risk management and strategic business planning.
Here we review recent GC Capital Ideas stories that have referenced (re)insurers doing business in emerging markets.
Recent Legislative and Judicial Developments in Continental Europe Affecting the Casualty Insurance Industry is the latest installment in Guy Carpenter & Company Ltd.’s (”Guy Carpenter’s”) legislative update series, designed to provide our international clients and markets with a concise overview of key trends in the Continental European legal environment. These issues have had an impact on insurers and reinsurers or are expected to have an effect in the near future.
A great deal of attention this year has been focused on determining the practical effects of Solvency II once it is put into effect. In March 2011 the results of QIS 5 were released. EIOPA launched a three-month Solvency II stress test shortly thereafter. Both events shed light on the real-world implications of the new regime, raised issues that should be addressed before it goes into effect and, in large part, sparked the debate that is likely to lead to a delay in its implementation.
Whatever the final method for assessing counterparty default risk under Solvency II, this is an opportune time for companies to revisit credit risk management to ensure not only compliance with regulations, but also to limit this non-core risk. Insurers transact with numerous counterparties, including policyholders and agents, corporate bond issuers and asset managers, reinsurers and, of course, reinsurance intermediaries.
Counterparty default risk is one of the core components of the SCR. This module has undergone substantial change over the several quantitative impact studies, as the supervisors attempted to find an appropriate measure of the risk. In the QIS 5 final report, EIOPA noted that this module received the most criticism for the “overly complex approach” relative to the materiality of counterparty default risk within the overall risk-based capital requirement (1). We expect to see additional changes that will simplify the calculation of risk.
Solvency II will profoundly impact the reinsurance market, though perhaps not exactly in the ways reinsurers or regulators have anticipated. This impact will not be limited to European reinsurance markets, but will be felt globally. Advances in disclosure and overall market strength will come with costs, including a more volatile pricing environment.
Succeeding Under Solvency II, Reinsurance and Counterparty Risk: Solvency II Counterparty Default Risk Considerations
Assessing Counterparty Default Risk
Counterparty default risk is one of the core components of the Solvency Capital Requirement (SCR). This module has undergone substantial change over the several quantitative impact studies (QIS) as the supervisors attempted to find an appropriate measure of the risk. In the QIS 5 final report, EIOPA noted that this module received the most criticism for the “overly complex approach” relative to the materiality of counterparty default risk within the overall risk-based capital requirement (3). We expect to see additional changes that will simplify the calculation of risk.
Succeeding Under Solvency II, Reinsurance and Counterparty Risk: Impact of Solvency II on the Reinsurance Market
Previous reports in our Succeeding Under Solvency II series focused on the capital requirements associated with Pillar I, corporate governance (Pillar II) and disclosure (Pillar III). In this briefing, the third in the series, we concentrate on special considerations for reinsurance and counterparty risk.