Solvency II will lead to insurers downsizing

The report said that, based on the latest quantitative impact study, QIS 3, more than one in four insurers may also need to raise capital, purchase more reinsurance, or be acquired.

It added that some insurers would rationalize their subsidiaries to reduce the number of regulated entities to an absolute minimum. In addition, Solvency II would also cause a shift to large diversified groups, it said.

“Companies that lack the resources to respond to sophisticated supervision will be hard hit by the implementation of Solvency II”, the report said.

It added that Solvency II will introduce a new solvency regime with an integrated risk approach that reflects the risks being taken by insurers much better than the current Solvency I regime.

But the report said that, although the implementation date is not until 2012, insurers and supervisors are far from ready.

“Solvency II will have a profound impact, although many insurers have yet to evaluate its effect on them, feeling that it is not sufficiently imminent to warrant a full analysis – this is a stance they may come to regret”, it said.

The report also highlighted that smaller insurers were continuing to lobby hard on the issue of proportionality to reduce the complexity of Solvency II.