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S&P Blasts European Life Re Solvency Proposal

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NU Online News Service, Sept. 13, 2004, 5:18 p.m. EDT

Proposed European Union life reinsurance solvency standards are so strict that they could threaten the stability of the European life reinsurance market.[@@]

Simon Marshall, an analyst in the London office of Standard & Poor’s Ratings Services, draws that conclusion in a new report on the proposed changes.

European life reinsurers are lobbying hard to amend the proposal and probably will succeed, but, as written, the proposal would quadruple the capital requirements for sums at risk considered adequate for investment-grade life reinsurers, Marshall says. Marshall also says the changes related to mortality risk could hurt affected reinsurers’ balance sheets

The proposed changes would apply the current rules for European direct life insurers to European life reinsurers. Life reinsurers would have to hold solvency at a level equivalent to 0.3% of the “sums at risk,” meaning the difference between reserves and the sums insured. The level now typical at the largest companies is about 0.08%, S&P says.

Moreover, the 0.3% solvency rate would make many life reinsurance deals bad deals, and, in the long run, that could damage life reinsurers’ financial strength, Marshall warns.