Small firms may be swallowed. Banks may sell insurer arms

A study by Morgan Stanley and Oliver Wyman says Solvency II rules will force the sale of smaller insurance companies to larger competitors, the Telegraph reports.

The framework will allow insurers with diverse businesses to hold lower levels of capital but put some monoline companies under pressure to enter new markets through acquisitions – according to the report – with others seeking to sell capital-intensive units.

Solvency II will impose the toughest capital requirements on non-life insurers, it warned. Reinsurers may benefit from increased demand as companies look to mitigate risk.

Banking rules

The FT said banking and insurance regulation would drive merger and acquisition activity.

Basel III banking rules mean that banks that own insurers will not be allowed to count the same $1 of capital against both banking and insurance operations, forcing them to sell their insurance arms.

Solvency II may stamp out insurers owning banks too.