Solvency II to hit insurance competition

The imminent introduction of a demanding new regulatory standard for the insurance sector will damage competition and hasten consolidation in the industry, analysts have warned.

The implementation of Solvency II, scheduled for 2013, will force insurers to jetison less-profitable businesses and, in more extreme cases, could lead to mergers and takeovers.

The Solvency II regulations –conceived in the aftermath of the financial crisis to address perceived systemic weaknesses in the insurance sector – will require companies to set aside much larger amounts of capital against theirliabilities. They will apply to insurers across the European Union, though Britain is implementing the reforms more speedily than most other countries.

The warning comes from Interim Partners, an insurance sector recruitment specialist, following research conducted among its clients.

The research indicates that nine out of 10 insurance company executives expect the introduction of Solvency II to reduce competition, while three-quarters expect it to drive consolidation.