Limited impact on European insurers from Solvency 2: Fitch

There will be no significant immediate impact on the credit ratings of European insurers from the introduction of the Solvency 2 risk-based capital regime, said Fitch Ratings.

The capitalisation levels of most of the insurers rated by Fitch are already significantly above the regulatory minimum.

Fitch strongly supports the development by European Parliament of the new risk-based capital regime Solvency 2, and has published a report that discusses the impacts of the proposed regime.

While Fitch does not expect to see materially higher required capital overall across the EU market, it does expect some re-distribution of capital across companies, with some having surplus and some needing to raise additional capital. Fitch would expect this to be the case particularly for companies in EU states where risk-based capital assessment is not currently the norm. This would create a favourable climate for an increase in merger and acquisition activity in these countries, as companies look for more efficient ways to allocate their capital.

The report discusses the draft framework Directive, the first piece of legislation on the proposed Solvency 2 regime, published by the European Commission in July 2007. It analyses the results of the latest round of quantative impact study 3 (QIS3), which gave insurers an opportunity to test the implication of the proposed calibrations on their solvency margins.

The results of QIS3 showed, while the vast majority (98%) of the 1027 participants across the EU had enough available capital to cover the minimum capital requirement (MCR) as calculated under the QIS3 calibrations, around 16% of participants would need to raise additional capital to cover the solvency capital requirements (SCR).