NU Online News Service, June 22, 2:02 p.m. EST

Europe's new financial regulations could mean opportunities for insurers or become a major financial burden if carriers do not strategically think through their exposure, a series of reports from Guy Carpenter says.

In the reports, the reinsurance broker, a subsidiary of Marsh & McLennan Companies, says insurers and reinsurers will need to be mindful of the increased capital needs associated with the new Solvency II rules that go into effect in 2013.

One report notes that while the focus may be on Europe, the new rules "present a wide range of considerations—and opportunities—to insurance entities worldwide. The new rules, the report goes on to say, change the way insurers and reinsurers look at risk and risk management practices.

"All businesses that have operations, subsidiaries or affiliates in Europe, write coverage in Europe or do business with insurers in Europe should be preparing now for these wide-ranging changes," the report says.

The new rules will increase property and casualty companies' capital requirements, and Guy Carpenter notes that there are several solutions carriers can employ to meet the new capital obligations including:

  • Reinsurance.
  • Insurance linked securities.
  • Diversification of business lines.
  • Utilization of other financial instruments.

The new rules, Guy Carpenter notes, are more than a "check the box" exercise. European insurers will need to critically analyze risk and assess the "true costs attached to them."

Insurers and reinsurers will also have to determine if they will need to develop their own models for risk or rely on "standard formula supplied by regulators."

Adoption of the standard or generic formula could result in "inappropriate—or at least suboptimal—results" because the model lacks to specificity of the risk profile a company developed model would have.    

NOT FOR REPRINT

© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.