Friday’s revised Solvency II proposals for European insurers offer no prospect of an end to the long-running dispute between regulators and insurers over suitable capital levels for products with long-term investment guarantees, Fitch Ratings says.
The latest proposals from the European Insurance and Occupational Pensions Authority (EIOPA) contain some concessions on capital requirements for when bond markets are particularly volatile. But the industry is unlikely to be satisfied by this, given the potentially significant extra capital that might still be needed to support business with investment guarantees. These products are an important part of insurers’ business in several European markets, particularly Germany.
EIOPA’s proposals follow its Long-Term Guarantees Assessment, an industry study designed to clarify appropriate capital requirements for long-term guaranteed products under volatile and exceptional market conditions. However, we understand that several major insurers consider the study to be inconclusive because the scenarios underlying the assessment were not, in their opinion, meaningful.
We expect the latest proposals will be just a starting point for more negotiations, potentially leading to further impact studies before any final decisions are made. The process is at risk of extending beyond the end of the current European Parliament and European Commission next year, which could lead to even longer delays as a new set of politicians would have to take over the process of bringing Solvency II into force.
In Fitch’s view, Solvency II itself – and deliberations over Solvency II proposals – are unlikely to have any significant impact on insurers’ balance sheets in the next few years because of the timescale involved in finalising and then phasing-in new rules. We do not therefore expect Solvency II to have an impact on insurers’ credit ratings during this time.