Fitch issues Solvency II warning

The Solvency II regime may have ratings implications for European insurers, Fitch’s has warned.

In a new report on the implications of the EU’s soon to be introduced solvency regime, the ratings agency says the draft specifications for the European Commission’s Quantitative Impact Study (QIS) 5 would increase many insurers' regulatory capital requirements. QIS5 is the last of a series of studies designed to model the impact of Solvency II on individual insurers.

The report says: “Depending on the severity of the increase in capital requirements, Solvency II may have rating implications for European insurers that are unable to raise additional capital or sufficiently reduce required capital through de-risking.”

However, it says the level of the impact remains uncertain until the European Commission makes its final decisions on the Level 2 implementing measures which will be based on the results of QIS5 study published in April 2011.

Clara Hughes, Associate Director in Fitch’s insurance team, said: “We expect that the proposals are likely to raise capital requirements for the industry in aggregate, although the impact of QIS5 compared to QIS4 on the solvency capital ratios of individual insurers will depend on the insurer's business mix and movements in the balance sheet from 2007."

"This could have rating implications for individual insurers if final Solvency II requirements are significantly more onerous than under the current regime".