Industry unlikely to be satisfied by new capital concessions, says rating agency
Solvency II proposals issued on Friday by the European Insurance and Occupational Pensions Authority (Eiopa) will not resolve the new capital regime’s main sticking point, according to rating agency Fitch.
Fitch said Eiopa’s proposals “offer no prospect of an end to the long-running dispute between regulators and insurers over suitable capital levels for products with long-term investment guarantees”.
The rating agency noted that the proposals contained some concessions on capital requirements for when bond markets are particularly volatile.
But it added that the industry is unlikely to be satisfied by this, given the “potentially significant” extra capital that might still be needed to support business with investment guarantees.
These products are an important part of insurers’ business in several European markets, particularly Germany, Fitch noted.
Eiopa’s proposals follow its Long-Term Guarantees Assessment, an industry study designed to clarify appropriate capital requirements for long-term guaranteed products under volatile and exceptional market conditions.
However, Fitch said: “We understand that several major insurers consider the study to be inconclusive because the scenarios underlying the assessment were not, in their opinion, meaningful.”
The agency added: “We expect the latest proposals will be just a starting point for more negotiations, potentially leading to further impact studies before any final decisions are made.
“The process is at risk of extending beyond the end of the current European Parliament and European Commission next year, which could lead to even longer delays as a new set of politicians would have to take over the process of bringing Solvency II into force.”
Fitch said Solvency II and associated proposals are unlikely to have a bit impact on insurers’ balance sheets for the next few years because of the time it will take to finalise and phase in new rules.
The agency added: “We do not therefore expect Solvency II to have an impact on insurers’ credit ratings during this time.”
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