Execution Certainty amid the Unknowns of Solvency II

From left: David Dubois, Head of Business Development, RGA France; Lionel Périnel, Managing Director, Continental Europe; Paul Sauvé, Senior Vice President, Global Financial Solutions, EMEA; Julien Chartier, Business Developer, RGA France.

On January 1, 2016, Solvency II officially took effect across Europe. This new regulatory regime defines supervision, reporting, and transparency requirements for insurers, and governs the amount of capital an insurer must hold. Not surprisingly, its implementation was a central focus within the European insurance industry throughout the year.

The ultimate impact of Solvency II has yet to be seen as insurers seek more effective strategies to optimize capital. While some clarity has been re-established in Europe’s capital-motivated reinsurance market following several years of preparation for Solvency II, the overall situation continues to evolve. Trends that emerged in 2016 included fierce competition for capital-motivated reinsurance business, selective local accommodation for capital requirements, and inconsistent regulator interpretations and implementations of the new rules.

Increase in total revenues in EMEA financial solutions business in 2016 compared to 2015

Amid the uncertainty, proven structuring capabilities and strong client relationships positioned RGA as a trusted partner. Working collaboratively with our clients, RGA led the design of the first wave of capital-motivated reinsurance transactions under Solvency II. In the Netherlands and the Nordic Region, for example, market-first lapse risk transactions enabled clients to free up capital through the transfer of risk in a cost effective manner.

In France, RGA and AXA completed the market’s first full-duration longevity swap, covering more than 15,000 annuitants and related commitments of nearly €1.3 billion. RGA was selected as sole reinsurer for this transaction by meeting AXA’s need for competitive pricing and timely execution. Superior knowledge and capabilities ensured success. This included proven expertise in longevity coverage in other markets, as well as a clear understanding of the specificities of the French market and ability to provide treaty wording per French law in a short timeframe.

In addition to executed transactions, RGA assisted many clients with their initial investigation of the use of capital-motivated reinsurance under the new regime and expects those engagements to generate additional opportunities in the years ahead.