Reinsurers to offer adaptive solutions for Solvency II in Mexico

The adoption of Solvency II-type regulations in Mexico will be positive as risks will be better managed and understood. Reinsurance can also play an important role in offering tailored solutions, said Agnès Bruhat, head of life protection pricing, Southern Europe, Middle East, Latin America, Canada for PartnerRe.

“We expect the new regulation to have a positive effect on the insurers and consequently on the insureds. The risk will be better understood, better assessed and better managed and, therefore, it will also be more accurately priced,” she said.

Pierre Rivier, senior underwriter, life–special deals for PartnerRe, added that bigger, more sophisticated companies may benefit more.

“The new solvency regulation will have a positive impact on the big and very well diversified companies. Other niche players that are smaller and not as diversified could be negatively affected,” he said.

“However, in order to judge the final impact, we will need to see how the specific parameters in Mexico will affect the solvency ratio.”

There is much to learn from the way Solvency II has been implemented in Europe, said Bruhat.

“Many drawbacks could be avoided in Mexico which would benefit from all the discussions and adaptations experienced in Europe on the quantitative side.”

Apart from the purely quantitative aspects of Solvency II, the qualitative side will have an impact for the risk management of companies, said Rivier. “Solvency II brings an interlinked process of decision-making and strategy.”

In Mexico the Autoevaluacion de Riesgos y Solvencia Institucionales (ARSI—the Mexican equivalent of the Own Risk and Solvency Assessment [ORSA]), will directly impact the consideration and mitigation of the risk—which, for example, can be done through reinsurance.

According to Bruhat, what makes the Solvency II environment innovative for insurers is the selection of performance metrics to support the objectives defined in their specific strategy.

“They may want to stabilise their income over time; they may wish to protect themselves against big events that could have an impact on their income, or they may look to release some capital.

“To have a certain target in terms of solvency capital requirements, they may also want to increase their solvency ratio, which looks at the own funds that are available compared to the solvency capital requirements.”

Once insurers have defined their objectives, reinsurance can help. For example, if the pandemic risk is high on a short-term portfolio with some mortality risk, reinsurers can offer stop-loss covers which are very efficient for covering pandemics.

If, on the other hand, the insurer has longer-term business with several risks such as mortality, morbidity and lapse risk, then quota share would be a more adaptive option.

“It depends also on the type of risk, and even if you are talking about a quota share it can be structured in such a way as to help stabilise the insurer’s result, or to increase the expected result,” said Bruhat.

A tailored approach is key to PartnerRe’s Solvency II-related solutions, said Rivier.

“Within PartnerRe we have dedicated customised solutions teams that are working on Solvency II-specific deals all over the world for life and non-life business.”

“They are here to support our local teams in Latin American with additional resources and specific capabilities around Solvency II. Our approach is to listen to our clients’ specific issues and look at the impact of different scenarios in order to define the optimal solution to meet their specific needs.

“We also bring our benchmarks and European experience to the discussion so that our Latin American clients can benefit from those learnings. During our November roadshow in Latin America, we will be doing just that.

“We want to be there, and we have to listen—we cannot come with a pre-prepared solution.”