The European launch of Solvency II is affecting not just companies in Europe, but around the globe. We are seeing organizations scrambling to create Solvency II departments, hire experts and redefine their overall risk strategies.
Solvency II is the updated set of regulatory requirements for insurance firms that operate in the European Union. Based on Basel II, which regulates the banking industry and other financial institutions in Europe, Solvency II has been referred to as “Basel for insurers.” There are similarities, although Solvency II has been expanded to fit the insurance industry and puts a greater emphasis on enterprise risk management. Its ultimate goal is to create a single market for insurance services in Europe.
While it may appear that Solvency II is taking shape only in Europe, companies around the globe that have a European parent will be affected. Additionally, there are a number of global regulators who are considering adopting very similar measures. Time is running out for Europe to create a single market based on economic principles to measure assets
and liabilities. As a result, many Actuaries are being called upon to assist their companies in creating adequate operational policies as the European implementation moves forward.
Solvency II places a lot of emphasis on diversification of an insurer’s portfolio, which should have an effect on the type of products developed on both the life and the non-life sides. These regulations will drive creativity and innovation in product pricing. Smaller insurers, however, may suffer precisely because of the value and emphasis Solvency II puts
on diversification. While large multinational firms are often well-positioned to delve into different product areas, smaller firms are more likely to specialize in a less expansive portfolio of products, and it may not fit their strategy to invest heavily in product diversification. Therefore, we could likely see an increase in the number of Mergers and Acquisitions in the insurance market. It’s likely that Solvency II will promote the use of Actuarial expertise in a number of ways. In addition to potential increased M & A activity, Actuaries will be key in the development of strategies to deal with the massive changes necessitated by Solvency II, particularly identifying the risks and overseeing the implementation of the technical guidelines and systems required by the new regulations.
Given the parameters of Solvency II, there has been, and will continue to be, an increased need for Actuaries on both the company and consulting sides of the profession, particularly those with international experience.
Actuaries who can claim Solvency II experience on their résumés, it seems, are in high demand, as are Actuaries with related experience in asset liability management, enterprise risk management, financial reporting, strategic pricing, M & A and capital management. As the implementation of Solvency II nears, we expect that growth in Actuarial opportunities globally will continue, not just for Europe parented companies, but also because those Actuaries who move into Solvency II roles will create a space to be filled. Additionally, as more of the developing countries model their own regulatory structure on Solvency II, Actuarial skills will be needed at a global level.