Italian insurers remain robust after Solvency II transition

Italian insurers' regulatory capital positions remained strong through their transition to Solvency II (S2) in 2016, although S2 coverage ratios are exposed to volatility in sovereign bond markets, according to Fitch Ratings in its latest report on the Italian insurance market's transition to Solvency II.

The aggregate S2 solvency capital requirements (SCR) coverage ratio was 220 percent at end-2016. The transition to the risk-based S2 regime increased the excess of Italian insurers' available regulatory capital over their solvency capital requirements.

However, the capital requirements of Italian insurers would probably experience the greatest increase if European authorities were to remove the zero-risk weighting for eurozone sovereign bonds under the S2 standard formula approach.

Fitch's primary measure of insurers' capital adequacy is its Prism Factor-Based Model (Prism FBM), as it believes that Prism scores are more comparable than S2 ratios across the market. It is unlikely that the potential introduction of capital charges on sovereign debt holdings will trigger rating changes. This is because Prism already applies capital charges to sovereign debt according to the rating level and duration.

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