Solvency II, a view from Sweden part 1 – the insurers

I have spent the last week travelling through the snowy fields and frozen rivers of Stockholm, meeting many from the insurance, asset management and regulatory sides of the industry and trying to find out if the approach in Sweden differs in any way from the rest of Europe. Here are some perspectives on what I found.

The insurance market in Sweden is dominated by some large players. Although there are approximately 470 insurance companies located there, the top five account for more than 80% of the market. This made it easier to get a good handle of where the large firms are in their programs.

I arrived in Sweden with some perceptions of how the market was addressing the issues of Solvency II and a belief that the insurance companies were being driven forward by the local regulator. Was I correct?

The first perception I had was a simple one – Swedish insurers were continuing to progress with their Solvency II programs, irrespective of delays and timelines.  A feeling that they are to some degree ahead of the pack.

This proved to be partially correct, although, as in other regions, I found many had scaled back their programs to some degree. I found some insurers who were well in control of their projects with their internal models complete and moving forward to source the remaining data required from their asset managers. Others I found to be somewhat in a state of flux, waiting for more news from EIOPA and to a degree bemoaning the fact that it will be towards the end of 2013 by the time they see this.

So on this point, Sweden differed little from the rest of Europe.

The next perception was that Swedish insurers were looking to apply look-through in the manner defined in the directive. Here, I found a consistency in the approach. All seemed quite clear, that look-through, and line-by-line data was a requirement for their risk management process. This differs slightly from the rest of Europe where I find more discussion about using mandates.

One thing that was consistent with the rest of Europe was that they had not yet sourced this data, excluding the internal data from their own asset management arm.

This makes me ask, why do so many insurers across Europe wait so long to ask for the data? or why do they seem nearly afraid to ask? This is not solely a Swedish issue, but it seems that there is a difference in cultures between asset managers and insurance investors across the continent and the globe.  Insurance companies want to be able to offer the big brand asset manager funds to their clients or invest directly in their funds to avail of their expertise, but are slow to demand transparency.
When you think that the level of investment made by European insurance companies into the funds industry is somewhere in the region of €1.5-2 trillion and that they pay billions in management fees, one would think, these questions would be easy to ask.

In part II of my view from Sweden I’ll have a look at the asset management and regulatory side of things…