Moody's: Solvency II regulatory disclosures unlikely to affect European insurers' credit quality

Creditworthiness of European rated insurers is unlikely to be affected when they will have to reveal, for the first time starting in May 2017, the extent to which their Solvency II ratios are enhanced by various measures, including transitionals and long-term guarantee measures, says Moody's Investors Service in a report published today. The disclosures are part of insurers' compliance reporting under the new capital regime.

Moody's report, "Insurers -- Europe: New Solvency II disclosure to provide insight, but unlikely to change our credit view," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.

"Our credit view of insurers is unlikely to change following the new disclosures as we already consider the impact of transitional measures on their Solvency II ratios. We expect the majority of our rated groups to maintain reported regulatory ratios well above 100% and remain well removed from regulatory intervention," says Dominic Simpson, Vice President -- Senior Credit Officer at Moody's.

Moody's uses Solvency II ratios adjusted for the impact of transitionals (aka "fully loaded") as a measure of economic capital. However, for some business models, including life insurance and especially UK life insurance, the rating agency sees these adjusted Solvency II ratios as less relevant to measure economic capital. In addition the new disclosures will not provide enough information to perform "perfect" comparisons of Solvency II ratios, especially between countries.

The UK and German life insurance sectors will likely appear as among the most reliant on transitionals, and Moody's expects insurers in these countries to provide additional explanation to give comfort to various stakeholders. In particular Moody's expects some UK life insurers to report Solvency II ratios potentially well below 100% when adjusted for transitionals and Long Term Guarantee measures. Also, the German life market is very reliant on transitional measures, although Moody's rated German insurers are not. That said, it could appear that some of German insurers (most likely small or medium-sized players) will have a Solvency II ratio below 100% without transitionals.