Expert check

The major themes for 2015. In addition to issues related to capital management, given the historically low level of interest rates 2015 will be dominated by the hunt for yields. Many questions about the attractiveness of insurance companies are answered by the Solvency II stress tests that were published in November 2014 based on the balance sheets for the previous year. Almost half of the insurance companies analysed had a solvency ratio of less than 150%. Under the standard model, VIG has a solvency ratio of around 160%, which is higher than the average mentioned above.

Opportunities. I believe that the current environment for non-life insurers is close to perfect for achieving a high return on equity and dividends. The current low level of economic growth in Europe together with low inflation means that non-life insurance companies require less additional solvency capital when premiums grow. Claims settlement becomes less costly due to the stable and, in some countries, even declining level of prices. At the same time, insurance companies must follow a conservative underwriting policy, because lower levels of financial income makes the underwriting result more important again. There is a risk here of attention being placed on increasing the overall result rather than the return on capital employed.

The combination of low interest rates, subdued economic growth and Solvency II could also have unintended results. Especially noteworthy: European governments can obtain funding at an interest rate that is close to zero and can issue long-term bonds on these terms. Under Solvency II, this ultimately also increases the pressure on European insurance companies, which according to EIOPA calculations hold EUR 7 trillion in investments.