Solvency II will lead to risk-adequate pricing and benefit insurers, according to study

A study by the global insurance company Swiss Re has found that Solvency II will reinforce risk-adequate pricing and that insurers will be rewarded for using risk mitigation tools. According to the report, Solvency II will lead to a better picture of an insurer’s risk exposure, will treat risk-transfer tools more consistently and increase transparency in the market.

The study predicts that the directive will not reveal a vast amount of capital inadequacy, which is one of the main fears in the industry. “Only insurers that have not taken adequate account of the risks in their portfolio could be challenged. This may be the case in life insurance, where traditional actuarial practice has often resulted in insufficient pricing of product guarantee and option features. However, insurers with advanced risk management should welcome the improved supervision

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