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European Insurer Rules to Boost Volatility, Allianz, Zurich Say

European rules being introduced in 2013 will make the insurance industry’s capital more volatile, according to Allianz SE and Zurich Financial Services AG.

Allianz’s solvency ratio, a measure of financial strength, could fluctuate as much as 40 percentage points in a worst-case scenario as the new regime requires a market-based valuation for long-term guarantees offered to customers, Oliver Baete, chief financial officer of Europe’s biggest insurer, told reporters in Munich today.

“It’s unavoidable that solvency ratios will be more volatile under the new regime,” Zurich CFO Dieter Wemmer said at the same event. “Long-term life insurance products are not adequately reflected in the new framework.”

The Solvency II rules, being adopted by Allianz and other European insurers, are designed to strengthen reserves to protect policyholders against a decline in investment markets. Zurich, Switzerland’s largest insurer, is already subject to the Swiss solvency test, a similar framework introduced in January.

“We need a regulatory regime that stays as close as possible to what was tested in the recent quantitative impact study, otherwise we’ll get a system that we haven’t tested in real life,” Wemmer said. Solvency II was tested from August to November in a fifth quantitative impact study, named QIS5.

The only alternative would be another test, “which would mean a delay of the introduction of Solvency II,” said Baete.

The new rules, designed to help the industry withstand future financial crises by better aligning their capital with the risks they take on, are being developed by the European Commission and the European Insurance and Occupational Pensions Authority, or Eiopa, along with local regulators.

“We have to find a solution for the remaining open points during this summer to make Solvency II a working regime from its introduction in 2013,” Wemmer said.

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