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Global Credit Research - 19 Jun 2006
MOODY'S REPORTS: SOLVENCY II FOR EU INSURERS SHOULD NOT LEAD TO WIDESPREAD RATING ACTIONS, BUT RISK MANAGEMENT EXPECTED TO IMPROVE
London, 19 June 2006 -- Based on developments to date, Moody's Investors Service does
not expect that the forthcoming introduction of Solvency II will result
in the European insurance industry as a whole needing to raising capital
or in a widespread adjustment of ratings across the industry, the
rating agency says in a new Special Comment.
"In Moody's view, the purpose of Solvency II is not
necessarily to strengthen the industry's capital base, but
more to ensure that sufficient regulatory and internal risk management
controls are in place to enable management and regulators to more fully
understand and control the dynamics of the industry's risk profile.
The impact of the new regime will therefore be felt widely across the
industry, not only in the field of regulatory interaction,"
explains Simon Harris, Moody's Team Managing Director for
European Insurance and author of the report.
Solvency II is a new European Union-wide enhanced solvency framework
for insurers being developed at the initiative of the European Commission
but relying heavily on the recommendations of the regulators of the member
states' insurance industries, as represented by the Commission
of European Insurance and Occupational Pensions Supervisors (CEIOPS).
Moody's report outlines the broad principles of the proposed three-pillar
system for Solvency II as well as presenting an overview of the existing
regulatory framework and the areas in which it has been thought to be
in need of enhancement. The report also includes detail on the
proposals formulated by CEIOPS, the consequent response from the
industry and CEIOPS' final responses, which are available
in a series of consultation documents. Based on these documents,
Moody's report -- entitled "Solvency II for European
Insurers: No Widespread Rating Actions Expected, but Major
Improvements to Companies' Risk Management" -- describes
the likely ensuing regulation and offers Moody's views on each of
the key aspects.
Notably, Moody's anticipates that the proposed requirement
under Solvency II for liabilities to be assessed on a more economically-driven
basis, and for more risk-reflective regulatory capital requirements,
should not require the industry as a whole to raise additional capital.
The rating agency additionally believes that the creation of a tiered
capital system convergent with that of the banking system will have a
number of positive implications. Issuance of qualifying hybrid
capital by insurance Groups is also expected to increase, as a result
of increased acceptance by regulators of such instruments, according
to Moody's.
Although Moody's does not expect Solvency II to lead to a widespread
adjustment of ratings in the industry, individual rating actions
may be necessary in cases where previously hidden capital inadequacies
are revealed as a result of the change.
"In our view, the clear positive outcome from the proposed
framework is a substantially enhanced risk-reflective regulatory
system and, by extension, an improvement in insurers'
internal risk management and assessment procedures -- with a resulting
improvement in the industry's risk profile generally,"
Harris notes. Another likely consequence is an increase in consolidation,
particularly in fragmented insurance markets.
Moody's will hold a teleconference on this special comment on Monday
19th June at 3pm London time.
* * * * *
NOTE TO JOURNALISTS ONLY: For a copy of this report, please
contact EMEA Press Information in London +44-20-7772-5456;
New York Press Information +1-212-553-0376;
Juan Pablo Soriano in Madrid +34-91-310-1454;
Henry MacNevin in Milan +39-02-58-215-580;
Eric de Bodard in Paris +331-5330-1076; Detlef
Scholz in Frankfurt +49-69-707-30-700;
Mardig Haladjian in Limassol +357-25-586-586;
Alex Sazhin in Moscow +7495-641-1881; Petr Vins
in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110;
Hilary Parkes in Toronto +1-416-214-1635;
Hong Kong Press Information +852-2916-1150; Melinda
Keating in Sydney +612 9270 8141; Luiz Tess in São Paulo
+55-11-3043-7300; Alberto Jones Tamayo
in Mexico City +5255-9171-1824; Daniel Rúas
in Buenos Aires +54 11-4816-2332 ext. 105;
or Reynold Leegerstee in Johannesburg +27-11-217-5471
or visit our web site at www.moodys.com
London
Simon Harris
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Beatrice R. Braun
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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