Pending EU solvency rules challenge insurers – adviser

August 7, 2009

By Nigel Tutt
MILAN, Aug 7 (Reuters) – Traditional insurance groups, such as Italy’s Assicurazioni Generali SpA, are likely to find the transition to the EU’s latest solvency rules more challenging, said Deloitte Consulting’s Giovanni Bragolusi.

Deloitte Consulting has been appointed as adviser to the European Commission on the impact of the EU directive implementing Solvency II rules and Bragolusi is responsible for the Italy part of the advice, Deloitte said on Wednesday.

“You have to divide the market into traditional companies and companies doing bancassurance,” he said in a Reuters interview, comparing those selling more via agent networks to those selling products via bank branches.

“For the big traditional companies (Solvency II) will be a challenging issue. Solvency II requires them to work in teams together on risk management,” he said, which should mean they use available capital more efficiently.

Bragolusi, who is insurance industry leader in Italy for Deloitte, said Italy’s biggest insurer, Generali, falls into the “traditional” category, and while it is “well-structured” it has a more federal organisation than some other major groups.

The UK’s Aviva, Germany’s Allianz AG and France’s Axa have “centres of knowledge and make instructions to the subsidiaries. Generali has a different structure,” he said in the interview.

Generali units in France and Germany each earn around 20 percent of the group’s total premiums, the largest contributors after Italy. In Italy, Generali recently ended a bancassurance deal with Intesa Sanpaolo SpA <ISP.MI> which its chief executive, Giovanni Perissinotto, had said was not going well.

Chief Financial Officer at Generali Raffaele Agrusti said the insurer, “like other major groups, (has) a central coordination structure which provides instructions to local sub-holdings or directly to business units.”

He added that Generali had maximised efficiency through managing its available capital, taking into account the risks implied in its activities.
“Therefore, the introduction of Solvency II does not find the company unprepared,” he said.

The EU’s Solvency II directive was approved last April by the European Parliament and enters into force in November 2012. Deloitte was appointed to analyse its impact earlier this week.

The Solvency II rules on capital requirements for insurers classify a wider range of items as capital than the existing Solvency I rules but require increased use of risk management techniques by companies.
Estimates from a number of insurance companies show that their solvency margin would be higher under Solvency II than the current Solvency I rules.

For the end of June, Generali calculated its Solvency II margin at 175 percent, against 125 percent under current Solvency I rules, above the minimum 100 percent required by insurance regulators.

On Wednesday, Axa said its Solvency II ratio was about 155 percent at the end of June, against 133 percent under Solvency I.

“Solvency II … can make companies more interesting for investors and provide more capital for companies,” Deloitte’s Bragolusi said. That extra cash could be used for acquisitions.

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