Insurers need to sinking fund so they can meet customer

Insurers need cushion funds to ensure they can meet customer requirements in unexpectedly large claims or poor investment performance in the case. As with banks, these pillows have proved once again, but thin. In theory, the only thing that changes from January 1, the European Union, at least when a new set of rules, known as Solvency 2 will take effect. 

After more than ten years of negotiations, all European insurance companies will be subject to the same rules of capital, which are intended to make the company more reliable and will enable investors and customers much easier to measure their resistance.

Not everyone is happy with the prospect. Identify the "future regulatory changes" to the executive insurance and arrogant necessary consequence of ambiguities and contradictions in the new rules, different enforcement and mountains of documents involved. Some companies had to strengthen the capital pending Delta Lloyd, the Dutch insurance company, announced in November that it will be 1 billion € (1,1 billion $). Priority rules in different companies, so that those who only offer a form of insurance, are under pressure to merge.

This contributed to the impetus for several transactions involving specialized insurance companies in 2015, including the acquisition of Brit Fair fax in February and XL CATKIN coup in May. Anxiety bosses have trimmed low level of the debt industry.
Some of the resentment is legitimate. The most regulators appear to agree that current weights affect investment unjustifiably long-term debt associated with infrastructure; some government bonds, in contrast, may be considered to be very safe.

European companies with significant international operations say it is not clear to what extent the Solvency 2 also apply to non-European companies. Transitional provisions designed to make life easier for German life insurance, in particular, will protect them from some of the elements of the new rules to 16 years.

Then there is how insurance companies will be allowed to replace the internal models for standard models used to calculate capital requirements for the issue.

Some large companies, including 19 in Britain, convinced the national regulators that its estimates are at least as good as those provided. More companies will apply in 2017, according to cut the required amount of capital and thus increase their profits hope.

To some extent that is detrimental to the very logic of the system, making insurers using internal models, including those using a standard difficult to compare, "says Jim Richard Price water house Coopers, solvency ratios accounting firm is everywhere and there is a large risk of error.

" It is also a matter of concern that some of the national regulatory authorities responsible for the implementation of the new rules are more lenient than others. The British and the Dutch, for example, is believed to be more demanding than his Italian counterpart.

But what weaknesses Solvency 2, the new system still provides a point of reference throughout the continent for the first time. "This will confirm who is strong and who is weak," says David Drowse by the rating agency Fitch.

Strong likely to begin to put the excess funds to work, acquisitions, or return the money to shareholders. Light, meanwhile, should increase their capital, cut their commitment to provide policy stingy for sale capital intensive business segments that fall into one of their colleagues brawnier hands.