The implementation of Solvency II, a new European insurance regulatory framework, will not only have an impact on insurers but will also affect the broader buy-side market participants. As new, increasing regulatory demands are imposed on insurance companies, some of these requirements will need to be passed on to their asset managers, asset servicers and custodians. This 'interconnectivity of risk' across the buy side will create both challenges and opportunities for the key players. Asset managers and servicers will need to respond positively to help their insurance clients to achieve regulatory compliance if they want to retain and grow their insurancerelated business.
A core requirement of Solvency II is for insurers to report new funding ratios like the solvency capital requirement (SCR) to their regulators. Since market risk constitutes nearly 60 percent of insurers’ total risks, there needs to be a significant focus on market risk, related SCR market ratios and the underlying assets managed on the insurer’s behalf. With insurers seeking to actively manage their SCR market on assets, increased data services, such as look-through, and greater risk transparency will be the new order of the day.
This article takes a close look at the type of competencies asset managers and servicers will need to develop to prosper in this new environment. It also raises the possibility that asset managers can go beyond helping insurance clients with regulatory reporting by providing value added services designed to actively manage capital charges for market risk.