The regulatory challenges that should be top of an insurance investor's list

Arthur Frick, CFA, INV-AIS / Investment Strategy at AXA Konzern AG gives his views on how Solvency II has impact insurance investors and which regulatory challenges lie ahead

Sara Benwellposted on Monday, October 05, 2020

Sara Benwell: How well have insurers coped with Solvency II regulations – and are there still hurdles to overcome?

Arthur Frick: The insurance companies I know coped very well with Solvency II implementation. The next steps will be an improvement of model components and processes, which is an ongoing task.

There have been massive efforts and investments in human capital during the last couple of years. The teams are trained now and full of ideas how to improve existing implementations.

"The insurance companies I know coped very well with Solvency II implementation"

The initial idea to use Solvency II risk models unconditionally for investment decision proposes was a too high demand in my opinion.

Solvency II has come with big improvements in terms of risk-based management of insurance companies as a whole. However, the models lack meaningfulness for detailed investment decisions.

Sara: What implications can we expect from the enforcement of IFRS17 and will this be as impactful as its regulatory predecessor?

Arthur: I think that the enforcement of IFRS 17 will be more impactful on how listed insurance companies invest, because the KPI’s are based on the IFRS results.

The valuation framework of IFRS 17 is in the spirit of Solvency II with regards to discounting of liabilities and risk margin.

The Asset-Liability-Management will gain importance, as the consequences of mismatching will not only impact the Solvency II ratio but also the IFRS income.

Sara: What future regulatory challenges lie ahead and how prepared are insurers?

In my opinion, the next big thing in regulation will be sustainability.

Policy makers are committed to big targets especially for the environmental aspect, what I think is good, and need to be translated into action.

"Everybody is talking about ESG."

There are big challenges for the whole society ahead. The insurance and investment sector will not be able to step back from this responsibility.

Everybody is talking about ESG. However, I think there are many open questions to be addressed.


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