A new capital adequacy regime for the global insurance industry is on track following a vote Tuesday by the European Parliament, says Fitch Ratings in a new report.
The European Parliament voted Tuesday to give the EU Commission the power to finalize the draft rules of the regime known as Solvency II. Fitch says that the vote represents a significant step towards implementing Solvency II, and “ensures the long-delayed regulatory regime for insurers is on track to take effect at the start of 2016.”
The rating agency notes that there are still several elements of the new regime to be finalized, such as determining the discount rate to calculate insurers’ reserves and capital requirements, and the choice of economic and demographic assumptions by insurers using an internal model.
The resolution of these issues could have a significant impact on capital levels, Fitch says, but it still expects these details to be agreed in time for implementation.
“Although we believe Solvency II is on track for finalization, we estimate that the elements still to be decided could affect the capital positions of some major insurers by several hundred million pounds,” it says, adding that the insurers it rates should “have sufficient capital buffers to absorb the potential effects of this remaining uncertainty.”
Indeed, it does not expect Solvency II to trigger changes to insurers’ credit ratings in the next few years.