Insurers in a ‘mess’ in run up to Solvency 2 – analyst

Insurers are in a ‘mess’ over capital requirements and available capital because of the eurozone problems, despite the looming deadline for Solvency 2, a JP Morgan analyst says.

The Italian government is keen on relaxing the rules for capital requirements. Italian insurers have suffered as Italian bond prices have fallen, and in conjunction with the junk status of Greek bonds, it means their balance sheet stength has been eroded.

However, the Italian insurance regulator will relax the rules around marking down losses on bond prices as it will allow Italian insurers to continue to invest in Italian Government bonds, says the Financial Times.

JP Morgan Duncan Russell says that if all insurers were to calculate their capital on an economic basis – as is expected under Solvency 2 – the European insurers would have their capital cut by 40bn euros, which is equivalent to 10% of their collective capital.

“What it is showing is that insurance capital requirements and available capital are still a mess – ie no one knows what to do,” Russell said.

“The hope was that Solvency 2 would help but even that now that is looking less and less like the answer because some of the assumptions.

“For an industry that is all about balance sheet and ‘renting’ capital to your clients, that’s quite a problem.”