Insurers prepare for diversification benefit under Solvency II
The recognition of diversification benefits in Solvency II is prompting a transformation in the way insurers manage risk. Firms are reconsidering their product mix and looking at innovative risk-sharing arrangements to maximise capital efficiency. Hugo Coelho reports
A key assumption for the insurance industry is that some risks offset others. Policyholders, life insurers point out, can die ahead of time or live longer than expected, but they cannot do both at the same time.
Insurance companies have built their businesses on the understanding of the merits of diversification, but regulation has been curiously blind to the benefits. Solvency II, the risk-based regime that will apply to European insurers from 2016, comes with a promise of radical change. Under
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