Munich Re “sees opportunity” after regulator approval for Solvency II model

The world’s biggest reinsurer says that despite significant challenges, Solvency II also offers plenty of opportunity

Insurance News

By James Middleton

Munich Re, the world’s biggest reinsurer, said Monday that although the incoming Solvency II regulatory regime will present the insurance industry with major challenges, the company is well prepared and even sees opportunity.
 
The German-based (re)insurer said it had received regulatory approval from the Federal Financial Supervisory Authority (BaFin) for its full internal model to calculate regulatory solvency capital requirements.
 
As of September 30, the economic solvency ratio calculated on the basis of the Solvency II standards was around 260%; and was at 277% as December 31 2014, Munich Re said. By comparison with the solvency ratio as calculated under the old method -- 242% as at December 31 2014 -- there has been a slight improvement under the method of calculation specified by the new regulatory requirements.
 
Speaking Monday at a briefing on Solvency II for investors and analysts Munich Re CFO, Jörg Schneider, said the slight improvement under the method of calculation specified by the new regulatory requirements underlines the comprehensive and risk-commensurate calibration of the internal model already used by Munich Re, despite the challenges.
 
"With interest rates remaining low, the new capital requirements under Solvency II pose a particular challenge for life insurance companies, including those of our Group," Schneider said. “Low interest rates will mean much higher capital requirements, whilst there will be a significant reduction in the types of equity pertinent for regulatory solvency purposes.”
 
But he insisted that "Munich Re is well prepared for the introduction of Solvency II," adding that, "after the Group has implemented certain measures, our life insurers will probably not have to apply for any statutory transitionals."
 
Munich Re said it has been drawing up and developing its own full internal model for around ten years already, and even after Solvency II comes into force, Munich Re will retain a great level of flexibility for capital management. In fact, Schneider went so far as to say that Munich Re also thinks Solvency II presents new business potential.
 
“As a reinsurer, Munich Re also regards Solvency II as presenting some business opportunities. By developing coverage concepts, we can support insurers in introducing and continuing to implement Solvency II.”
 
Solvency II is a project of the European Commission to fundamentally reform and harmonize European insurance supervisory regulations. Solvency II follows the three-pillar approach: minimum capital requirements (quantitative), supervisory review processes (qualitative) and market discipline (disclosure). After many years of negotiation, the institutions involved in the EU legislative process (Council of the European Union, European Parliament, and European Commission) agreed on standards which will come into effect as at 1 January 2016, and have already impacted supervisory practice before that date.
 

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