Ratings agency Moody's has predicted that the forthcoming introduction of Solvency II will not result in European insurers being forced to raise capital or adjust ratings.
"In Moody's view, the purpose of Solvency II is not necessarily to strengthen the industry's capital base, but more to ensure that sufficient regulatory and internal risk management controls are in place to enable management and regulators to more fully understand and control the dynamics of the industry's risk profile," said Simon Harris, Moody's team managing director for European Insurance.
Solvency II is a new EU-wide enhanced solvency framework for insurers being developed by the European Commission but relying heavily on the recommendations of the regulators of the member states' insurance industries.
The proposed requirement under Solvency II is for insurance company liabilities to be assessed on a more economically driven basis, and for regulatory capital requirements to become more risk-reflective.
"In our view, the clear positive outcome from the proposed framework is a substantially enhanced risk-reflective regulatory system.
"And, by extension, there will be an improvement in insurers' internal risk management and assessment procedures - with a resulting improvement in the industry's risk profile generally," Harris said.
Although Moody's does not expect Solvency II to lead to a widespread adjustment of ratings in the insurance industry, individual rating actions may be necessary in cases where previously hidden capital inadequacies are revealed as a result of the change.