Solvency II to have 'neutral' impact on sector's rating

Fitch has stuck by its view that Solvency II will have a neutral impact on the ratings of European insurers and reinsurers, following the publication of the latest test run results.

The ratings agency, responding to the publication of the QIS (Quantitative Impact Study) 5 today, maintains its view that “the new regime will be broadly ratings-neutral across its portfolio of rated European insurers and reinsurers.”

However it says that some companies will benefit and others lose out as a result of the implementation of the harsher directive, which is due to come into force at the end of 2012.

David Prowse, senior director in Fitch's insurance team, said: “Several non-life insurers may fall short of Solvency II capital requirements as currently drafted.

"Unless the Solvency II risk charges for non-life business are recalibrated, some non-life insurers may have to recapitalise or reshape their business in order to survive. However, Eiopa is already performing additional work to improve the calibrations and it seems that Solvency II will ultimately be more favourably for non-life insurers than the draft rules as they stand."

Moody's Senior Credit Officer Dominic Simpson commented that the QIS5 results mean another such field exercise will not be needed.

He said: “We view the QIS5 results cautiously, but believe that the QIS5 results at a sector level are better than the market expected and probably preclude the need for another comprehensive field test.

“With EIOPA also echoing the European Commission’s sentiments about the need for reasonable transition measures in important areas such as regulatory equivalence of third countries, treatment of hybrid capital and subordinated liabilities, and discount rates on technical provisions, a relatively smooth transition to Solvency II has now become much more realistic.”

He added that the results confirmed that larger, well diversified groups were best placed to weather the transition to Solvency II.