S&P: Capital Management, ERM, Solvency II Concern European Insurers

August 7, 2007

Standard & Poor’s Ratings Services analyzes plans to pay back capital, maximizing ROEs and the lack of opportunities to deploy capital effectively in a new report – “Capital Management, Enterprise Risk Management, And Solvency II Are Top Of European Insurers’ Agendas.”

“We view share buybacks positively because of the likely favorable impact on financial flexibility when they are supported by a sound rationale and leave capital at levels consistent with current ratings,” explained S&P credit analyst Simon Marshall.

S&P noted that “probably the most relevant change” to its recently revised capital model concerns capital management, with the “introduction of explicit credit for diversification.” This type of credit is “in addition to the implicit diversification credit embedded in many of the charges (such as equity and mortality) where indices and industry-level data are being used.”

The report also discusses enterprise risk management (ERM), noting the “recent upgrades of three large insurance groups, where the quality of their ERM was a contributing factor. High levels of ERM should result in the insurers concerned producing future results that are within their risk tolerance, which in each case implies much less volatility than in the past.”

As presented at the recent I.I.S. Conference (See IJ web site July 13) S&P’s ratings analysis increasingly stress ERM, which is also a cornerstone of the Solvency II regulations, now due to become effective in 2012. S&P said it “believes it will have a profound impact, and expects it to reshape the German and southern European retail insurance markets.” Marshall added that “many insurers have yet to evaluate Solvency II’s effect on them, feeling that it is not sufficiently imminent to warrant a full analysis. This is a stance they may come to regret.”

The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor’s credit ratings, research, and risk analysis, at: www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com.
Ratings information can also be found on Standard & Poor’s public Web site at: www.standardandpoors.com; select Ratings in the left navigation bar, then Credit Ratings Search. Alternatively, call one of the following Standard & Poor’s numbers: Client Support Europe (44) 20-7176-7176; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4017.

Source: Standard & Poor’s

Was this article valuable?

Here are more articles you may enjoy.