Fewer than half of EU insurers have a coordinated approach to capital management

Fewer than half of European insurers have a dedicated capital management department, according to Deloitte’s 2016 EMEA Capital Management in Insurance Survey. The findings come as Solvency II, the most significant regulatory change to the European insurance industry in decades, having come into effect on 1 January 2016.

Currently, 60% of capital management departments or committees report to CFOs. However, Deloitte’s research shows many departments perform related capital management activities, potentially blurring the lines of responsibility.

Andrew Holland, Deloitte’s EMEA Solvency II co-leader, said: “Our research shows capital management is not organised or governed in a coordinated way in insurers across Europe. Even where insurers have such a department, many depend on separate functions such as the risk, actuarial and investment departments. Solvency II requires a technical skillset, and there is heavy reliance on these areas. Without a joined-up view across all of these areas, there is a significant risk insurers could miss the whole picture. Strong and appropriate governance is needed to support a holistic view of capital management activities.”

Deloitte’s research showed capital management will be a focus in the next five years for 90% of EU insurers, with an emphasis on how capital is sourced, used and maximised. About half of respondents have considered potential strategies, but they are still in their early stages.

Claude Chassain, Deloitte’s EMEA Solvency II co-leader, commented: “These results will not be surprising, given that insurers have been intensely focussed on Solvency II and improving their operating models to deal with the new regulations. With such low interest rates, there is a significant opportunity and imperative for insurers to develop solutions that maximise their capital. We expect to see a shift where companies develop less capital intensive products and a greater emphasis on reducing risk margins. This could lead to a diverse range of capital strategies coming out in the months ahead.”

Chassain concluded: “Stakeholder communication will be key. Half of the survey respondents said it is currently a shortfall in their capital management. The market needs to understand how balance sheets react to conditions in real time and the types of risks and volatility firms are willing to accept rather than mitigate. These discussions will take a critical role in future.”

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Notes to editors

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