1. Allianz Insurance Solvency II
How Solvency II might affect investment strategy
Stephen Wilcox, Chief Risk Officer, Allianz UK

2. 1 2 Table of contents 3 4 5 6 Background: Allianz Solvency II status
Issues affecting all firms 4
Standard formula firms 5
Internal model P&C firms 6
Internal model Life firms
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3. Allianz An Introduction
Allianz Group is one of the world’s leading insurers and financial services providers
Founded in 1890 in Berlin, Allianz companies now extend to over 70 countries with more than 155,000 employees and 75 million customers
Insurer financial strength rating of AA from S&P and A+ from A.M. Best
International network of strong brands, with first-class products in the fields of:
property and casualty insurance
“P&C” – non-life insurance
life and health insurance
asset management
For more information visit
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4. Allianz in the UK An Overview
Two main operating entities in the market:
Allianz Global Corporate and Specialty
Allianz Insurance plc
The Chief Risk Officer is responsible for ensuring the company’s risk profile is managed within risk appetite
AGCS: globally operating company in the corporate P&C market
Product range includes Financial lines
Allianz Insurance: focuses on UK domiciled P&C risks, including retail and mid-corporate
Allianz lines
Aviation
Marine
Engineering
Energy
Property
Liability
Financial Lines
Risk Engineering
Allianz Risk Transfer
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5. Solvency II – current status Uncertainty
Working assumptions:
Key European parliament vote – March 21st
Details finalised October 2012
Governments pass law by 1st Jan 2013
In force 1st Jan 2014
Key parliament vote already delayed c. 1 year
If it’s not passed in March, Solvency II will be delayed
A long history of things taking much longer than expected
There’s a good chance of further delays
The timetable for Solvency II is highly uncertain. Significant details are still not finalised.
It is a political game now.
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6. Issues affecting all firms Investment yields
Negative real yields – in search of higher returns from insurance and/or investments
UK instantaneous implied real forward curve
The days of making your money from investments are long gone
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7. Issues affecting all firms Solvency II specific
Prudent person principle
Freedom to invest as you see fit, provided
You understand the risks
You take account of the interests of policyholders and other beneficiaries
Requirements for documentation, e.g.
Risk appetite
Various policies, specifically on derivatives
Public disclosure requirements
SFCR: Solvency and Financial Condition report
Qualitative report on your risk exposures
QRT: Quantitative Reporting Templates
Including detailed asset lists
Principles-based regulation means that insurers have more discretion – but will need to reveal more
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8. Standard formula firms Conservative strategy
Firms who rely on the regulatory model for their capital requirement
In the UK – mostly (but not wholly) small, less sophisticated firms
Abroad – more widespread
Standard formula appears to be relatively conservative
Across the board
Particularly in respect of alternative investments
Regulator can direct use of internal model if standard formula inappropriate for the risk
Guards against regulatory arbitrage – e.g. holding investments with unusual risk/reward patterns
Alternative investments likely to be relatively unattractive
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9. Internal model P&C firms Using spare capital
Most UK P&C firms (by number and size)
Including probably all the biggest firms, and Lloyds
Key risks are insurance-related
Will aim to broadly match insurance liabilities
Using low-risk fixed income securities
Possible opportunity for something other than Gilts
Will want to be prudent with capital required to match regulatory requirement, perhaps plus a margin
May be more speculative with any additional capital
Investment risk diversifies well against core insurance risk
Rating agency constraint for many firms
Rating agency models tend to be conservative
Rating agencies consider risk in the widest sense
Opportunities for more adventurous investment strategy – if there’s spare capital and the risk appetite
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10. Internal Model life firms In search of risk reduction
Key risk areas are market and credit
Value of investments and certainty of payment
Much uncertainty remains
Solvency II rules outstanding are critical to some business models
“What is this business worth?”
Very long-term, uncertain liabilities
Limited ability to match those liabilities
Bigger mismatch  more volatility in balance sheet
More volatility in balance sheet  more volatility in share price
Key question: “How can I match my liabilities more closely?”
Looking for ways to match liabilities more closely
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11. Allianz Global Corporate & Specialty Your contact
For further information please contact:
Sue Yen Leow
Head of Financial Institutions
Allianz House
60 Gracechurch Street
London, EC3V 0HR
Direct: (0)
Allianz Global Corporate & Specialty (AGCS) provide class leading protection for Financial Institutions and can offer solutions to your Directors and Officers, Professional Indemnity and Crime Insurances.
AGCS has a strong, experienced underwriting team focused on client and broker service with support from a sound processing operation, claims resource, and an extensive global office network.
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