Deloitte: Next stage of Solvency II annuity battle

By Rob Starr, Content Manager, Big4.com

As regulators start to assess the impact of potential rules to align the treatment of insurance across Europe, Deloitte, the business advisory firm, highlights the huge implications for annuity providers.The European Commission’s Long Term Guarantee Assessment – part of the development process for the Solvency II rules – will test the impact of different approaches to how insurers set reserves and capital for products like annuities.

“Solvency II has been several years in the making and brings many benefits, particularly in the way insurance companies manage their risks and hold capital against them. However, one of the key stumbling blocks in the negotiations has been the treatment of annuity liabilities and the implications for customers at retirement,” says Tamsin Abbey, insurance partner at Deloitte. “The Matching Adjustment is an extremely important issue for life insurance companies and pensions savers. Depending on what the final regulations say, annuity providers might need to hold larger reserves, which could lead to them either reducing dividend payments or raising more capital. Insurers must ensure senior management understand and manage their company’s risks properly.  How much capital is held in the technical provisions is only one part of the equation.”

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities.