Insurers plan to re-price products for Solvency II
Many insurers plan to re-price and re-mix products in reaction to the onset of Solvency II.
Many captives are already priced out of domiciles in the European Economic Area (EEA) due to the Directive’s increased capital requirements.
Insurers’ rising prices will no doubt heighten this problem, particularly for those parented by small and mid-sized companies.
According to business advisory firm Deloitte, 36% of general insurers will re-price products in response to Solvency II, which has risen from 19% last year.
About one quarter (26%) of life insurers say they will do so compared to 8% of non-life companies, while 23% will re-organise their business, this has reduced from 47% last year.
Mike Sands, senior partner of Menzies, a UK accounting firm, said: “If Solvency II compliance was adopted on small captives – the costs would just blow our captive out of the water.”
Rick Lester, lead Solvency II partner at Deloitte, noted developments in insurers’ approaches to Solvency II as many have reviewed the way it will be implemented.
He said: “In past surveys insurers have talked of the need to restructure and reorganise their business; now they are analysing the risks they run and reviewing the amount of capital they need to write these risks, and adjusting their pricing and product mix accordingly.
“By adjusting their product mix, insurers are able to optimise the diversification of the different risks in their portfolios.
“This may lead some companies to consider acquiring books of business while others may withdraw from some parts of the market.
“We’re also seeing increasing use of reinsurance and hedging mechanisms across the industry to lay off more capital-intensive risks.”