Standard Life Investments

Inside Global Insurance Investment

Solvency II goes live

Solvency II presents major business challenges for insurers, made all the more difficult by unprecedented low interest rates.

April 2016

Solvency II is now live after many years of development and debate over the fine detail. In the UK, a number of insurers have been advised by the Prudential Regulation Authority (PRA) that their internal business models have won approval. Similarly, in other EU markets, notably France and Germany, internal models are undergoing review, with successful insurers announcing their good news to the market.

Insurance firms will increasingly shift their focus from complying with the new regime to configuring their businesses – including their investment strategies – so they are profitable and capital-efficient. Solvency II will not, however, be a static target. In 2016, new rules are likely to be introduced for the capital treatment of investments in infrastructure assets and securitisations. At the same time, the European Insurance and Occupational Pensions Authority (EIOPA) is undertaking a review of ultimate forward rate assumptions. This may further reveal the economic strains being borne by the European life sector in the current extraordinary interest rate environment.