Solvency II : smaller insurance firms to face upheavals

A survey conducted by Interim Partners revealed that the vast majority of those questioned believe smaller companies will be the most heavily impacted by the new capital risk management rules. In fact, 90 per cent of the 170 British insurance executives questioned said they believe these companies would stop providing personal line insurance policies entirely, due to poor profit margins.

The Interim report does not stand alone and a number of other analysts have warned that the implementation of Solvency II, which is set for 2013, will impose a high new regulatory standard for the insurance sector that could damage competition within the industry.

The regulations were initially conceived after the financial crisis in order to deal with what were perceived to be systemic weaknesses in the insurance sector. Whereas the market has been somewhat divided in the past, the legislation aims to unify the European Union insurance market into a single entity by harmonising insurance regulation across the region.

A single EU Passport licence for insurers to operate in member states if they fulfilled conditions, was introduced but many states concluded that the minimum requirements were insufficient and took up their own reforms, resulting in differing regulations.

Another key target of the Solvency II Directive will be to require companies to set aside substantially larger amounts of capital against their liabilities.