I suspect that some insurers, particularly health insurers, will be sitting closer to their 100% Solvency ratio (SCR) mark, if not below, in their SII Q1 reporting. Will be interesting to see how regulators across Europe react to that!
Recent soft markets (downward pressure on premiums) and rising cost base have been on the UK Regulator’s (PRA) radar, evident by some of the messaging in their recent firm letters that were covered in Episode 3 of RegNut. Couple that with CoronaVirus + market volatility and you have the making of a perfect storm.
It will be very interesting to see how the PRA and their counterparts in Europe react to Q1 Solvency II reporting that would be crystallising the drop in mark value on balance sheets as at 31st March for most insurers.
Having been on the PRA’s side of the fence, I appreciate the delicate position the regulators are in since this situation puts their two primary objectives in conflict:
- Customer protection: ensuring there is sufficient capital in place for the insurer to make valid claim payments (e.g. stopping the insurer from writing new business and increasing the risk)
- Financial stability: ensuring no knee jerk reaction which may result in triggering contagion risks of default to their suppliers.
More thinking coming soon … watch this space.