Solvency II to increase reinsurance (and ILS) demand in Europe: S&P

As the new European regulatory standards’ adoption looms ahead, with Solvency II regulation set for January 1, 2016, S&P has said that it should result in higher reinsurance demand, which could mean more opportunity for insurance-linked securities (ILS). 



“Capital charges under the standard formula or under internal or partial internal models remain under review, and could lead to higher capital requirements. Therefore, we believe reinsurance will remain an important source of short-term and long-term capital as it is fully recognised under Solvency II,” advises S&P.

And example of this, notes S&P, can be seen outside the dominant property/casualty insurance and reinsurance sector, and in the expanding life re/insurance market.

“Certain products carrying longevity risk, for example, are more punitive in terms of capital requirements under Solvency II than others. We have seen, particularly in the U.K., a large portion of primary insurers’ defined-benefit pension scheme transactions completed with the support of longevity reinsurance agreement,” says S&P.