As part of its research programme on company evaluation, the Financial Analysis and Accounting research centre has just published a new study sponsored by Swiss Re entitled Solvency II: An Internal Opportunity to Manage the Performance of Insurance Companies, written by Philippe Foulquier, Director of the research centre.
The study shows how the prudential framework of Solvency II might give a fillip to the cultural revolution underway in the managerial practices in insurance companies: integration of risks and consideration of the cost of capital and value creation, rather than mere analysis of profit margins.
This study shows how, by perfecting their existing management tools, insurers can capitalise on the investments made to meet Solvency II regulatory requirements. It would be reductive, after all, to think that value creation for shareholders or mutual members is solely the optimisation of a firm's profitability. For mutual insurers, value creation involves providing mutual members a satisfactory trade-off between the quality of the service and its price. So this study looks at all those in the insurance industry, as they are all subject to the new Solvency II standards and they all strive to satisfy their shareholders or their members.
By modelling and simulating the Solvency II regulatory constraints on an insurance company active in six lines of business, this study highlights the contributions made by an economic capital model to the management of the company, in particular to the definition of policies for asset allocation, management of shareholder's equity, asset/liability management, hedging of risks, launch of new products, and valuation.
EDHEC Publication SolvencyII SwissRe
