Generating Cash in a Volatile Solvency II World

REPORT PREVIOUSLY PUBLISHED BY OLIVER WYMAN
August 3, 2015
Regulation
EMEA

Abstract

From the Oliver Wyman website:

Cash has been fundamental to the re-rating that the European insurance sector has enjoyed in recent years. We believe that the introduction of Solvency II when it comes into effect on 1 January 2016 presents a threat to this success story. Available capital post Solvency II becomes significantly more volatile and the way cash is disclosed today needs to change. In this joint report with Morgan Stanley, we explore further in a Solvency II world, how the value-in-force becomes an integral part of own funds and recommend strategies for insurers in managing the volatility this creates.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

How the focus on cash has paid off for European insurers

6

Beyond “free surplus” as a cash measure

9

How the market currently thinks about cash flow for insurers

12

What changes post Solvency II?

15

Traditional measures and capital drag

20

Managing capital in a more volatile solvency regime

23

A new lens for disclosing cashflow post Solvency II

27

Attributes of winners and losers

29

Appendix I: Various required capital definitions

30

Appendix II; Solvency Capital Requirement (SCR) Composition

32

Appendix III: Glossary of terms

33

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