Tuesday, 20 September 2011

Guy Carpenter briefing - succeeding under Solvency II

Nice all round document from the guys at Guy Carpenter on Solvency II, which touches (naturally) on impacts on the reinsurance industry, but also covers broad trends across the insurance industry, particularly in the world of cost-effective/capital lite risk mitigants. The following aspects stand out;
  • Benefits of transparency and security felt to be outweighed by the challenges of Solvency II
  • Nicely merges the added cost of compliance for reinsurers with the additional business which will be generated by market demand for reinsurance as mitigant.
  • They feel Solvency II will help with consistent analysis of reinsurer strength
  • ILS market again cited as one which benefits from Solvency II pressures on capital bases
  • Stress the drawbacks of the current standard formula for cat risk, which pretty much forces carriers of non-EU cat risk to apply for internal model approval due to the capital charges as currently calibrated
  • Strange stats on UK multinational Solvency II costs (£100m quoted as being set aside) - I am assuming this is non-Lloyds reinsurers only, as that barely covers the last 6 months for the Tier 1 companies.
  • Section entitled "costs may be exacerbated by potential regulatory inefficiency" made me chuckle!
  • COver the main mitigants available (and of course where their expertise can help!) such as reinsurance, ILS, hedging, diversification techniques and M&A
  • Good material on the underwriting cycle and how the standard formula simplifications work contrary to it.

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