A key assumption for the insurance industry is that some risks offset others. Policyholders, life insurers point out, can die ahead of time or live longer than expected, but they cannot do both at the same time.
Insurance companies have built their businesses on the understanding of the merits of diversification, but regulation has been curiously blind to the benefits. Solvency II, the risk-based regime that will apply to European insurers from 2016, comes with a promise of radical change. Under
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