S.Life worries over Solvency II risk reaction

Story by: Joy Dunbar Magazine: FinancialAdviser Published Thursday , January 21, 2010

Solvency II may disproportionately affect the amount of risk taken within the insurance sector, David Nish, group chief executive for Standard Life has warned.

Speaking at the Scottish Parliament's Economy, Energy and Tourism committee last week, Mr Nish said risk is needed for the insurance business to function properly.
He said there is a need to strengthen regulation, with industry models required to be treated relevant to the risks that they bear.
Mr Nish said: "One of the most significant issues that we are working with in our sector is Solvency II. It looks at whether risk and capital management within companies like us is effectively managed.

"We have no difficulty with the intent of the legislation and we are very much support it. There is a reaction or pendulum swing which happens in crisis events, so now the way that the consultation paper it is putting it does appear there is an extreme view of the amount of the amount of capital required."

Mr Nish also told the committee that banks and the insurance industry should be regulated differently.

He said: "There is a lot of lobbying within the industry. It is going to be a hard road to get it into a balanced position there would be an adverse swing. Standard Life as an insurance business and a long-term saving business – the impact could be disproportionate to the risks taken.
"There is a theme developing that what fits for the banks, fits for other parts of the financial services sector. It could end up having a disproportionate affect and can impact the way we make decisions."
Also speaking at the committee, Margaret Craig, acting director general for the Association of British Insurers, said the concerns about Solvency II centred around the level of capital required.

She said: "That is not just a technical point, if you are running an insurance business which requires capital and you are selling annuities that will affect the amount of annuity a person can purchase.

"We are doing a lot of lobbying, we did find at the beginning it was a UK centric problem, but there seems to be a shift."

Mr Nish said Standard Life would be working closely with India and China.

He said: "We will continue to transform ourselves because the business has become more competitive – we are a customer and technology business. So we have a heavy investment program this year. We may be developing a domestic insurance joint venture with the Bank of China."

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