Solvency II has changed the mindset of European life insurers, especially with new entities like private equity houses, hedge funds, and insurtech firms joining the fray. One reason these entities have entered the market is to extract value for the shareholders, not only by investing in complex assets with higher returns, but also through the optimisation of capital resources.
Insurance capital management opportunities under the new regulatory regime are regularly discussed but implementation has generally lagged. However, with increased pressure on the industry, now is an ideal time for insurers to incorporate innovative Solvency II capital optimisation techniques into their planning.
In this article, Milliman’s Paul Fulcher and Securis Investment Partners’ Luca Tres examine several techniques using innovative capital market transactions. The authors focus on actuarial and technical risks while providing insurers with options to exploit capital benefits on the asset side of the balance sheet.