Solvency II consequences in insurance companies

To cover the risk and avoid crisis, regulation authorities impose measures to minimize the risk taken by financial institutions and they set a prudential standard named “Solvency”. The latter was not correctly adapted because insurances were seriously assigned to the crisis as AIG and prudential authorities decided to change the norm and to pass to “Solvency II” in 2012.

In Solvency II, Insurances have to keep a capital which depends on the risk in order to ensure a risk control, to struggle against the insurance risk taking, and to promote confidence in financial system. This is a capital requirement measure which consists in freezing equity for each commitment weighted by the risk. Consequently, the capital requirement generates inequalities in term of profitability between insurance activities because they do not have the same risk level. In effect, capital requirement is based on risk, thus activities can become relatively more or less profitable.

The aim of my thesis is to determine insurance activities which will be suffering from solvability II requirements and to target the new sources of profitability for insurances. Moreover, Solvency II requires an adaptation because it lets a certain leeway to insurance companies. They can benefit from parts of the standard which allow a certain leeway namely the implement procedures to manage the risk in order to minimize the capital requirement.

To conclude, “Solvency II“will change deeply the income from insurance activities by changing the rules. Thus, insurances have to adjust their activities right now and make a new business plan and strategies to avoid big