Tuesday, July 10, 2007

New capital rules set to benefit big EU insurer

Following on the Warren Buffet post below, this struck me as a pretty big deal.

"Mid-sized generalist companies are the ones that will suffer," said Vipond.

The new rules may spark a wave of M&A, as companies merge to diversify their businesses or ease the burden of compliance costs or where firms sell off units in sectors in which they can no longer compete, analysts say.

Investors should also benefit from the changes. Some insurers may need less regulatory capital to run their businesses and may exploit asset liberalisation measures to replace equity capital with relatively cheaper debt, which could push up the industry's mediocre returns to shareholders. SHAREHOLDER WINDFALL UNLIKELY

But investors shouldn't expect to see insurers return large amounts of capital to them, analysts warn.

From Reuters

Solvancy II:

The solvency margin is the amount of regulatory capital an insurance undertaking is obliged to hold against unforeseen events. Solvency margin requirements have been in place since the 1970s and have been amended by the Solvency I Directives in 2002. Whereas the Solvency I Directives aimed at revising and updating the current EU solvency regime, the Solvency II project has a much wider scope.