Summary
Having seen the volatility of the Solvency Ratios throughout the CoViD crisis in our first two instalments, we are going to take a closer look at the optional parts of the Solvency II regulation. These are crucial when it comes to explaining why every country is different. Understanding these measures is important, because these are also parts of the upcoming review.
 |
Download the article here |
Dr Florian Ueltzhöfer
Actuary DAV/IVS
Teoman Kaplan
Actuary DAV
Having seen the volatility of the Solvency Ratios throughout the CoViD crisis in our first two instalments, we are going to take a closer look at the optional parts of the Solvency II regulation. These are crucial when it comes to explaining why every country is different. Understanding these measures is important, because these are also parts of the upcoming review.
There are permanent Long-Term Guarantee (LTG) measures called Volatility Adjustment (VA) and Matching Adjustment (MA) on the one hand, and the temporary transitional measures on the Technical Provisions (TTP) or risk-free rates (TRFR) on the other hand. Today we focus on the VA and TTP only, as the MA is only applied in ES and UK, and the impact of the TRFR is negligible.
The blue bars in today’s graph show the average impact of removing the VA on the Solvency ratio of undertakings using it. Conversely, the green bars show the impact of the TTP.
The biggest VA impact – by far – can be observed in the Netherlands. The second biggest is seen in Germany. In our first instalment, in contrast, we have seen these two markets at the opposite ends of the scale with respect to the overall CoViD crisis impact on Solvency ratios. At the same time, the VA impact on Denmark – the only other country with increased Own Funds during Q1 2020 – is also quite substantial.
The common factor of DK and NL – in contrast to all the negatively affected markets – is the irrelevance of the TTP. At first glance, Belgium seems to be the exception to the rule: but only one BE undertaking uses the TTP.
Going forward, we will take a deeper look at the VA, and show that the strong correlation between the substantial impact of the VA and the increase in solvability during Q1 2020 for BE, DK and NL are not coincidental.
Further, we need to discuss the importance of the TTP in some countries. We will show how the evolution of the Insurance Balance Sheet – finding suitable substitutes for traditional asset classes – is key to stabilising the Own Funds, and how this increased resilience gives more flexibility for investment opportunities in the long run.
Finally, we will look at Sweden and Finland, where neither the VA nor the TTP play a major role.
LOOKING FORWARD TO FUTURE DISCUSSIONS ON THIS CHANNEL!
Impact of Solvency Ratio after removal of (optional) LTG measures and/or Transitionals
Source: EIOPA, Report on long-term guarantees measures and measures on equity risk 2020.
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable at the time of publication. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors GmbH.
For investors in Europe (excluding Switzerland)
This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). Allianz Global Investors GmbH has established branches in the United Kingdom, France, Italy, Spain, Luxembourg, Sweden, Belgium and the Netherlands. Contact details and information on the local regulation are available here (www.allianzgi.com/Info).
For investors in Switzerland
This is an advertising document issued by Allianz Global Investors (Schweiz) AG, a 100% subsidiary of Allianz Global Investors GmbH.