Index finds Solvency II is greatest concern

Solvency II

Regulation remains the greatest risk facing the insurance industry with Solvency II a particular concern, according to the latest Insurance Banana Skins survey.

The survey of risk perceptions among more than 600 insurers and industry observers in 54 countries found regulatory risk was the greatest concern this year in markets across North America, Europe and the Far East.

Regulation, which was also the top risk in 2011, was followed by investment performance, up from fourth place in 2011, macro-economic environment, which held third place and business practices in fourth position, up from 18th Natural catastrophes held fifth place.

The survey is the fourth to be run by the Centre for the Study of Financial Innovation in association with professional services firm PwC, since 2008.

The CSFI said the EU’s Solvency II Directive, which is now in its seventh year of planning, was the focus of the strongest concern, with many non-EU countries waiting to see its final shape before finalising their own plans.

Survey editor David Lascelles said: “It is ironic that the industry’s greatest risks are seen to come from regulation, which is intended to reduce risk, at a time when operating and underwriting conditions are also very hard. It is no surprise that these pressures are reflected in rising concern about the ability of management to handle them.”

PwC global insurance leader David Law said: “Once again regulation is the number one risk. The fragile economic environment and subdued investment performance also remain high on the list of concerns. Managing these challenges is clearly a critical boardroom priority.

A breakdown of the industry by sector showed that the main concerns on the non-life side were excess capacity and competitive pricing, along with the impact of surging catastrophe claims. Concerns in the reinsurance sector were mainly with the security of capacity in a highly competitive market.

Number one threat

High taxation is now seen as the number one threat to European business according to the third Lloyd’s Risk Index.

Taxation has risen to the top of the risk index from sixth place in 2011. Loss of customers and cancelled orders is ranked the second highest risk, changing legislation is the third, cost and availability of credit is fourth and “excessively strict” regulation fifth, the survey found.

Lloyds said the ranking showed that the burden or regulatory interference had also become a major concern to European businesses, with changing regulation moving up one place and excessively strict regulation up four places .

In 2011, loss of customers and cancelled orders topped the ranking, followed by talent and skills shortages, currency fluctuation, cost and availability of credit, and changing legislation.

Lloyds chief executive Richard Ward said of the findings: “With business tax in the spotlight and rising up the political agenda, executives are understandably concerned. Yet the danger is that an emphasis on near-term, operational issues comes at the expense of significant, strategic decisions that have previously exercised business leaders.

“With the timetable for global economic recovery likely to be much longer than we hoped, a focus on long-term sustainability and effective risk management should be a priority for boards across the world.”

The survey run in conjunction with Ipsos Mori asked 588 C-suite and board level executives across Europe, North America, Latin America and Asia Pacific about their attitude to 50 risks across five categories.

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