Solvency II rewrites the rules for insurers

Solvency II's global reach

Solvency II may have been made in Europe, but its impact will reverberate in other parts of the world.

For big multinational insurance groups, like Allianz, Aviva, ING and Mapfre, that have their home office in the EU, Solvency II's long reach can extend to their subsidiaries in the Americas or Asia-Pacific. Each of their offshore business units will need to comply with the national regulations in the country where they do business. But they may also need to conform to tougher Solvency II standards, potentially requiring that they significantly increase their capital reserves.

European subsidiaries of insurers domiciled outside the EU, including big North American groups like MetLife, Canada Life and Travelers, Australia's QBE, and Japan's Tokio Marine, will need to satisfy Solvency II capital requirements as any EU insurer would. Non-EU groups with a presence in several European markets may reap administrative efficiencies and diversification benefits by consolidating their European units into a single holding company.

Insurers that do not do business in the EU but compete against EU rivals in their home markets could enjoy some competitive advantages as Solvency II's new rules phase in. In Latin America, for instance, EU life and property and casualty insurers have made significant inroads in recent years. However, the potential requirement that the Europeans increase their solvency capital could result in their scaling back their participation in some lower-return product categories after 2013, giving local incumbents a home turf advantage.

Ultimately, no insurer can safely assume it will be able to circumvent the tougher capital and risk-management standards imposed under a Solvency II-like regulatory regime. The International Association of Insurance Supervisors, a supra-national regulators' group, has chosen Solvency II as a baseline for development of a global safety-and-soundness standard. This would suggest that if Solvency II compliance is not a near-term obligation, something very much like it could well affect all insurers in the future.

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