Reinsurers main beneficiaries of EC Solvency II review: Berenberg

China iTech Ghana
Tuesday, September 28, 2021 | views Last Updated 2021-09-28T02:37:13Z

Analysts at Berenberg believe that reinsurers will be the main beneficiaries of new proposal to review Solvency II rules made by the European Commission (EC).

accounting imageThe review is largely in line with the initial proposal published by the EU regulator EIOPA in December 2020, and Berenberg notes that the framework is now mostly set.

According to analysts, the main negative of the review is that supervisory authorities have been given a more formal framework for their powers to stop dividends, buybacks and bonuses.

But on the other hand, positives include a more challenging calculation of the discount rate for life insurers that will be phased in through to 2031.

Overall, the proposal estimates that the change will release €90 billion of capital in the short term, or around 16% of FY 2020 total SCR required capital of €550 billion in the EU. In addition, there is a long- term benefit of €30 billion.

Changes will therefore be most welcome to insurers with long-tail liabilities that will benefit from a reduction in the calculation of the risk margin, a reduction in the percentage applied from 6% to 5%.

“We believe this is mainly a benefit to reinsurers,” Berenberg stated. “For example, SCOR estimated at Q2 2020 that this would reduce the company’s risk margin by 22ppt, and thereby add 20ppt to its solvency ratio. We believe Hannover would have a similar benefit.”

In contrast, insurers with long-tail life liabilities could face challenges, as they will now need to use a lower discount rate to calculate their liabilities.

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  • Reinsurers main beneficiaries of EC Solvency II review: Berenberg

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