{"id":47267,"date":"2015-12-08T01:21:00","date_gmt":"2015-12-08T00:21:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/note\/insurance-companies-grapple-with-new-regulatory-constraints-capital-rules-and-increased-risks\/"},"modified":"2015-12-08T01:21:00","modified_gmt":"2015-12-08T00:21:00","slug":"insurance-companies-grapple-with-new-regulatory-constraints-capital-rules-and-increased-risks","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/note\/insurance-companies-grapple-with-new-regulatory-constraints-capital-rules-and-increased-risks\/","title":{"rendered":"Insurance companies grapple with new regulatory constraints, capital rules and increased risks"},"content":{"rendered":"<p><em> <strong>Natixis Global Asset Management carried out a survey of 200 insurance company executives in<br \/>\nnine countries (including United States, France, Germany, Nordics and United Kingdom). The<br \/>\nkey findings include:<\/p>\n<ul>\n<li> Insurers say Solvency II\u2019s new capital requirements rank as top short-term concern<\/li>\n<li> Changing regulatory environment increases focus on risk, liquidity and efficiency<\/li>\n<li> Search for greater income and returns drives demand for investments beyond<br \/>\n traditional fixed income <\/strong> <\/em><\/li>\n<\/ul>\n<p>Two-thirds (67%) of U.S. and European insurance executives say their business is not well<br \/>\nprepared for the industry\u2019s changing regulatory requirements, according to a study published<br \/>\ntoday by Natixis Global Asset Management. With Solvency II rules taking effect January 1,<br \/>\ninsurers\u2019 ability to adapt to new governing policies is becoming more important.<\/p>\n<p>The Solvency II Directive, which aims to prevent the failure of major insurance companies, is<br \/>\nchanging the way businesses operate, invest and compete. While meeting Solvency II\u2019s<br \/>\nenhanced capital requirements is the No. 1 short-term concern for the majority of insurers<br \/>\nsurveyed, the cost of implementation is a close second. Many insurers will have to boost their<br \/>\nfinancial reserves under the new rules and increase investments in risk management<br \/>\ncapabilities, particularly in light of new and escalating risks such as cyberattacks, climate<br \/>\nchange and state terrorism.<\/p>\n<p><em>\u201cThe soundness of insurance companies is vital to the financial system, and insurers are<br \/>\nstepping up in earnest to the new, higher standards,\u201d<\/em> said John Hailer, chief executive officer for<br \/>\nNatixis Global Asset Management in the Americas and Asia. <em>\u201cManaging risk is what insurers do.<br \/>\nBut the strategies they have used in the past may not sufficiently limit their risks or help their<br \/>\ninvestment performance. To continue to serve their important role in the markets and society,<br \/>\ninsurers need innovative ways to manage their investments and capital resources.\u201d<\/em>  <\/p>\n<p><strong>Most insurers surveyed not fully prepared for regulatory impact <\/strong><\/p>\n<p> With the implementation deadline for the European Union\u2019s Solvency II Directive just weeks<br \/>\naway and many of the Dodd-Frank regulations in the United States already in place, the<br \/>\nmajority of insurers still are not well prepared to meet the challenges of the new regulatory<br \/>\nenvironment, according to Natixis. Half of executives (50%) identify the regulatory environment<br \/>\nas the biggest threat to the insurance industry.<\/p>\n<p>Meanwhile, the survey found evidence that organizations of all sizes are seeking to become<br \/>\nmore efficient and resourceful in finding sources of growth: <\/p>\n<ul>\n<li> Three-quarters (76%) say it is increasingly important to structure assets as efficiently<br \/>\nas possible.<\/li>\n<li> Just over half (51%) of insurers agree that regulatory changes in their region have led<br \/>\nto a more efficient use of capital, and 56% say the new rules will lead to higher<br \/>\ninvestments in risk management and improved risk management strategies. <\/li>\n<\/ul>\n<p><strong>The quest for yield pushes risk budgets<\/strong><\/p>\n<p>The survey findings signal a significant shift in strategy by insurers who have long relied on<br \/>\nfixed income for yields. Executives say that repressive monetary policies, coupled with strict<br \/>\nregulations, are affecting their capital structure and costs, causing them to seek new ways to<br \/>\ninvest and manage risk. <\/p>\n<p>Key findings include:<\/p>\n<ul>\n<li> Six in 10 insurers cite higher yields as their top investment priority, yet 68% are<br \/>\nconflicted between generating alpha and protecting assets.<\/li>\n<li> More than three-quarters (77%) say the ultra-low-rate environment has made it<br \/>\nmore difficult to find investments that generate returns they need to cover future<br \/>\nliabilities.<\/li>\n<li> Most (62%) agree that is has become increasingly challenging to diversify their<br \/>\nportfolios within their risk budget.<\/li>\n<li> Seventy-three percent say they need better strategies to generate alpha without<br \/>\nincreasing their risk budget.<\/li>\n<li> Most (92%) insurance executives recognize the need for increased complexity in their<br \/>\nportfolios to meet investment objectives, and 42 percent are looking to external asset<br \/>\nmanagers to outsource at least some, if not all, of their investment activities.<\/li>\n<\/ul>\n<p><em>\u201cNew rules are increasing the complexity of allocation process\u201d<\/em>, said Fabrice Chemouny,<br \/>\nexecutive vice president and global head of institutional sales for Natixis Global Asset<br \/>\nManagement. <em>\u201cInsurers are looking for yield and need stability to satisfy investors and improve<br \/>\ntheir own margins without incurring additional risk and capital costs. The long-term effect of low<br \/>\ninterest rates has limited traditional options. It is a very delicate balance.\u201d <\/em><\/p>\n<p>The survey found that insurance companies plan to raise their allocations to alternative<br \/>\ninvestment strategies in the next year to help generate higher yield than they expect from fixed<br \/>\nincome investments.<\/p>\n<ul>\n<li> Fifty-eight percent of insurers\u2019 surveyed plan to increase use of nontraditional<br \/>\ninvestments, including real estate, infrastructure, private equity and other alternative<br \/>\nassets, as a way to generate stable income with low correlation to the markets.<\/li>\n<li> Optimistic for higher returns, nearly half (49%) of insurers say they\u2019ll increase their<br \/>\nallocation to equities in the next year. Only 17 percent plan to increase their bond<br \/>\nholdings.<\/li>\n<li> Fifty-nine percent agree that investing in new and alternative asset classes has<br \/>\nbecome more difficult given new valuation and capital requirements. <\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Two-thirds (67%) of U.S. and European insurance executives say their business is not well<br \/>\nprepared for the industry\u2019s changing regulatory requirements, according to a study published<br \/>\ntoday by Natixis Global Asset Management. <\/p>\n","protected":false},"author":20,"featured_media":47265,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1481],"tags":[1655,1968,1651,1437,1724,2091,1680],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/47267"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=47267"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/47267\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/47265"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=47267"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=47267"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=47267"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}