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Daily Insurance Industry News
Tuesday 20th of February 2018
March 16, 2011

KPMG comment on latest Solvency II impact study

by Gill Montia

Story link: KPMG comment on latest Solvency II impact study

KPMG is suggesting that there is still much work to be done with regard to Solvency II deadlines.

Having welcomed publication of the results of QIS 5, the fifth European-wide quantitative impact study on the forthcoming Solvency II rules, the accountancy firm notes that a significant number of firms did not meet the requirements.

Fifteen per cent of participants across Europe, and 20% within the UK fell short, with “a concentration of small insurers in this position”.

KPMG has therefore identified key consequences of the results as follows:

Some insurers will seek to reduce their exposure to certain types of assets; for example, corporate bonds attract significantly higher capital charges than sovereign debt despite the difference in risk profile of sovereign debt across the EU.

There will inevitably be further consolidation in the industry, driven by companies seeking to increase diversification, which is rewarded under Solvency II.

In addition, KPMG expects that companies struggling to meet the new capital requirements may look to merge with, or be acquired by, companies with higher levels of capital.

The new regime is based on fair values of assets and liabilities, and will inevitably bring volatility to traditional measures of financial strength.

This will probably increase the use of hedging and reinsurance to manage the capital position.

Many companies operate multiple subsidiaries across the EU, which makes it more difficult to obtain credit for diversification.

Finally, KPMG expects more companies to change corporate structure, for example by using branches across the EU, thereby improving the capital efficiency of the business and reducing the number of regulators that they need to deal with.

 

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