Solvency II: Two Years On

Solvency II: Two Years On
Managers must focus on asset classes that align with insurers’ needs and developing capital-efficient solutions

May 2018, London. In 2018, the greatest opportunities for asset managers operating in Europe’s insurance market
are to be found in asset classes such as private investments, emerging market assets, and absolute-return funds,
according to the latest The Cerulli Edge―Global Edition.

However, asset managers should also keep developing the capabilities needed to offer customized solutions
tailored to insurers’ individual needs, says Cerulli Associates, a global research and consulting firm.

“For European insurers, an asset manager’s ability to provide look-through on pooled vehicles investing in
nontraditional assets, such as infrastructure or private credit, as well as timely and accurate Solvency II capital
requirement calculations, can be a significant differentiator,” says Justina Deveikyte, associate director of European
institutional research at Cerulli.

“With capital efficiency highly prized under Solvency II, keeping insurers informed of risk and capital consumption
in their portfolios and tailoring products to reduce capital charges are top priorities for most managers across
Europe,” says Deveikyte. She notes that several large asset managers have been investing in resources to boost
their Solvency II capabilities.

Last year, asset managers focused on creating capital-efficient solutions. However, demand for bespoke capitalefficient
solutions has failed by a considerable margin to live up to early expectations. Instead, Europe’s insurers
have sought asset classes that are capital efficient or optimized by nature, such as mortgages, which have a very
low capital requirement but still provide an attractive return.

“One explanation for this is that insurers use different Solvency models, which makes it difficult for an asset
manager to provide a bespoke capital-efficient portfolio,” says Deveikyte. “Another reason is that larger insurers
tend to do optimization of their strategic asset allocation in-house. A further reason is that the European insurance
sector is well capitalized. Those insurers that do struggle often use transitional measures to improve their capital
position rather than Solvency II-efficient solutions.”

Nonetheless, Cerulli believes that having a customized-solution team capable of developing innovative, capitalefficient
solutions and providing optimization services can help managers to communicate better with insurers and
deepen existing relationships.

“Implementing and adjusting to Solvency II left insurers suffering regulatory fatigue. However, with the new regime
now fully in place, we expect to see a higher level of activity by insurers investigating potential new asset classes
with increased governance requirements,” says Deveikyte.

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