Robustness analysis of transition to the Solvency II discount curve

The Danish FSA has concluded an analysis of how the transition to the coming Solvency II discount curve will affect the solvency coverage of Danish insurance undertakings. The analysis shows that the sector in general is financially prepared to the transition under the current market conditions.

The analysis includes all insurance undertakings which will be subject to the Solvency II regulation i.e. non-life insurers, life insurers and multi-employer pension funds.  

According to the analysis non-life insurers will not experience challenges as a consequence of the transition to the Solvency II discount curve. In the worst scenario the average solvency coverage is app. 200 pct.

For life insurers and multi-employer pension funds the general picture is that undertakings are sufficiently robust to handle the transition to the Solvency II discount curve under current market conditions. In the worst scenario the average solvency coverage for multi-employer pension funds is above 300 pct. whereas the solvency coverage for life insurers is 125 pct. The financial resilience in the life insurance undertakings is generally lower than previous. Few small life insurers and multi-employer pension funds may have challenges with the transition to the Solvency II discount curve.

The analysis of robustness does not include all elements from the long-term guarantee package e.g. the possibility to use volatility adjustment and macthing adjustment.

Read the memo here (pdf)