European reinsurers well placed in new Solvency II world
The major reinsurers of Europe have strong levels of solvency – or coverage – in terms of their capital adequacy under Solvency II, according to Fitch Ratings.
Speaking in London at a Fitch Ratings event about insurance capital management, Martyn Street, senior director at Fitch Ratings, said that Munich Re, Hannover Re and Scor had all stated levels of coverage within or even above the target range required by the new solvency regime.
Swiss Re also had a strong level of coverage. The company is based in Switzerland, which is not in the European Union, but Switzerland is one of just two countries with solvency regimes that the EU has acknowledged to be fully equivalent to Solvency II.
“Only two countries have full equivalence, Switzerland and Bermuda,” Street pointed out. “With Canada, the US, Mexico, Brazil Japan and Australia having provisional equivalence.” However, he added that so far the European Insurance and Occupational Pensions Authority (EIOPA) has not assessed these countries for reinsurance. “It’s therefore hard to say how reinsurers will be impacted by Solvency II.”
Street noted that European reinsurers were seeing a great deal of interest in longevity swaps, citing Hannover Re, Scor and Munich Re as being particularly active in this part of the market in recent years. However, he stressed that it was not yet clear if this longevity demand was merely a short-term development.
“There’s huge potential for longevity,” he told the audience at the event. “But – is it permanent?”
According to Street other factors have also been affecting the market, including a recent bout of mergers and acquisitions (M&A) activity amongst medium to small reinsurance companies over the past year. Street said that the main driver for this M&A activity was the ongoing soft market, with Solvency II playing little part in it.
Summing up Street said that reinsurers’ Solvency II solvency capital requirement positions were very strong at the moment and that the wider Solvency II framework will influence the shape of the wider reinsurance landscape. However, Solvency II was just one of several factors driving the reshaping of the reinsurance sector.
