Solvency II Review is Coming to an End: Expected Effect on European and UK Insurers

Morningstar DBRS has released a commentary discussing the recent review of the Solvency II prudential regime and its likely effect on the EU and UK insurers.

Key highlights include:

-- Both in the EU and the UK, one of the main goals of the Solvency reform is to free up capital resources and facilitate insurers’ investment in long-term assets without affecting their capital position.
-- The reduction of the risk margin is one of the most relevant changes to be implemented in both the EU and the UK.
-- We note that European and UK insurers have maintained robust regulatory capital ratios in recent years, and the new Solvency rules are not expected to materially change their risk appetite.

“Most of the Solvency II amendments are expected to benefit mainly life insurers”, said Mario De Cicco, Vice President, Global Financial Institutions at Morningstar DBRS. “Thanks to the revised measures, insurance companies with a long-term liability profile will not only be able to deploy additional capital resources but will also be able to invest them in a wider range of long-term assets without facing much higher capital constraints”.