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 UK insurers better positioned to face the challenges of Solvency II

UK insurance companies are better positioned to face the challenges of the new regulatory framework compared to other European insurers, for which the move to a risk-based approach will be a much more intensive exercise, according to Corrado Pistarino, Head of Insurance LDI, Aviva Investors.  

The introduction of Solvency II has spurred a big debate in the UK around the future prospects of the annuity business.  

Pistarino, a speaker at the marcus evans Managing Insurance Assets under Solvency II Conference in London, UK, 26 - 28 September 2012 said: "In its original formulation, Solvency II was designed to align the regulatory treatment of annuities to the general risk-based approach underpinning the new solvency framework. This would have severe consequences on the UK retirement space. Without regulatory safeguards against mark-to-market volatility, an increase in capital and a higher level of reinvestment risk would raise the cost of annuity products for the would-be pensioners."  

However, he went on to say that the European Union is expected to introduce the Matching Premium legislation to allow insurers to continue with the current protective measures on annuities. "In the UK, the annuity business was the only line of business to go under major changes as the effect of the introduction of Solvency II, but Matching Premium means not much will change," he added.  

The situation is different in continental Europe, according to Pistarino, where many of the UK's risk management practices and reporting requirements are not in place.  

"The management of insurance assets should not be disjointed, but instead brought together under one umbrella. All insurance organisations will need to adopt a more holistic view on their balance sheet and place a stronger emphasis on capital. That is one of the most important contributions of Solvency II. On the asset side, Solvency II will require insurance companies to have a more advanced and intimate view on their investments, and review their governance in order to be able to profit from opportunities arising from transitory market dislocations, e.g. in the space of liquidity," he concluded.  

The marcus evans Managing Insurance Assets under Solvency II Conference will take place in London, UK, 26 - 28 September 2012.  

For more information, please visit the event website

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