The financial sector stands for an important part of society’s fundamental infrastructure and national economy. Previous financial crises indicate the importance of having a well-regulated financial market. Former directives of regulating the insurance industry had insufficient solvency regulations and were lacking in risk management.
Therefore, the regulatory framework Solvency II, the successor to Solvency I, has been established on the European market. The objective of Solvency II is to ensure consumer protection by ensuring insurance companies properly reflect the risks their businesses are vulnerable to.
The regulatory framework Solvency II came into force in the turn of 2015/2016. However, it has been on every insurers’ agenda for years and preparations have been done. It is therefore of interest to investigate how Swedish insurance companies have adjusted to Solvency II at an early stage after the transition.
This has been investigated by conducting interviews with mainly Chief Risk Officers and Risk Managers at Swedish insurance companies. As a complement, a questionnaire was distributed to asset and capital managers, having insurers as customers, regarding their perception of insurers’ changes in investment behaviors.
The findings of this study imply that insurance companies have had a compliance focus to adopt the regulation rather than a business focus. No indications of adjustments to corporate business strategy has yet been noticed. However, some companies have developed a risk culture within the organizations. The extensive reporting and calculations of capital that Solvency II entails, has lead to implementations of new systems and processes for companies. It is further noticed that Swedish insurance companies use the standard model for calculating the capital requirements.
Solvency II has lead to increased understanding of the trade-off between capital, risk, and return by holding a risk-adjusted capital. Also, an increased engagement of employees in the risk management process has been noticed. The companies are aligned with the ORSA process, since it is one of the requirements, and are aware of the potential benefits the ORSA process can contribute to. Lastly, this study indicates an improved risk awareness and culture within the insurance companies by educating existing employees and employing new competent employees.
Authors: Lind, Patricia | Andersson, Siri