Solvency of non-life insurers
No. 1/2000
Solvency of non-life insurers: Balancing security and profitability expectations
How much capital do insurers hold and how much should they hold? These are the key issues addressed in the latest sigma study published by Swiss Re. It examines the statutory regulations in force in the US, the EU and Japan, and places them in the context of the effective capitalisation and the standards imposed by rating agencies. In addition, the report highlights the balancing of solvency regulation, rating agency requirements and shareholders‘ demands for high returns. Detailed figures on current solvency ratios in the regions covered in the study form the foundation of the report.
The most important findings of the study were:
Insurance companies in Europe and the US normally exceed by several times the minimum solvency requirements imposed by supervisory authorities. Government regulations thus result in hardly any effective cost to the insurer.
The capital requirements of rating agencies are substantially tighter than regulatory solvency regulations and restrict many insurers in optimising their capital base.
In recent years, the capitalisation of insurers in Europe and the US has risen at a considerably higher rate than premium volume. The reason for this overcapacity was an exceptional stock market boom in combination with relatively good technical results.
Simulations of insurers capital funds have shown that, despite an increased asset risk, a significant stock market correction would not jeopardise the solvency of the average insurer. The same is true for major catastrophic losses.
Current levels of overcapitalisation may conflict with high return-on-equity targets. In the future, the importance of hybrid capital as a means of capital management should increase, as it allows the insolvency risk to be reduced systematically at lower capital costs.
In the EU in particular, amendments to current solvency regulations are pending. Canada and some US states are gaining experience with additional dynamic cash flow models. The introduction of supplementary regulations for financial conglomerates is under discussion in the EU and the US; these will take into account the increasing convergence between the banking and the insurance sectors.
This publication can be downloaded in English, German, Italian, Spanish and French.
Download "Solvency of non-life insurers: Balancing security and profitability expectations"
Download "Die Eigenkapitalausstattung der Nichtlebenversicherer im Spannungsfeld von Sicherheit und Renditeanforderungen"
Download " Solvibilità degli assicuratori Danni: sicurezza vs redditività"
Download " La solvencia de aseguradores no-vida: una búsqueda de equilibrio entre seguridad y rentabilidad"
Download "Dotation en capital des assureurs non-vie: trouver le bon dosage entre sécurité et rentabilité"
For further questions and copies of Chinese or Japanese versions, please contact sigma@swissre.com.
