Regulatory developments: The reform of insurance supervision law in Europe took place on 1 January 2016. Along with redefining capital requirements, Solvency II places additional demands on companies’ internal management systems and on the information to be disclosed by undertakings to the regulator and the public at large. Hannover Re has implemented the new requirements. In view of our internal target capitalisation with a confidence level of 99.97%, which comfortably exceeds the level of 99.5% envisaged for target capitalisation under Solvency II, the capital requirements of Solvency II do not present any additional hurdle for our company. The core functions of Solvency II – the risk management function, the actuarial function, the compliance function and the internal audit function – have been implemented along existing processes and organisational structures at Hannover Re. Additional staff had to be taken on and extra systems deployed as part of the launch phase, first and foremost in order to be able to meet internal and external reporting requirements.
Parallel to the regulatory developments in Europe, we are seeing adjustments worldwide to the regulation of (re)insurance undertakings. It is often the case that various local Supervisory authorities take their lead from the principles of Solvency II or the requirements set out by the International Association of Insurance Supervisors (IAIS). On the other hand, insurance companies in Switzerland, Australia, Bermuda, Brazil, Canada, Mexico and the United States have been granted equivalence status for their insurance supervision standards relative to Solvency II for the purpose of conducting their business activities in the EU. In return, EU insurance undertakings are able to adopt the regulatory regimes of the aforementioned countries for their business transacted in such markets in order to comply with Solvency II.
Above and beyond this, further capital requirements for large, internationally operating (re)insurance groups are to be anticipated in the future. These requirements are under development by the IAIS and the Financial Stability Board (FSB).
In the event of the United Kingdom leaving the European Union we would initially anticipate a transitional period in which the contracts existing between British and EU companies can continue under the same legal conditions. For this reason we do not expect any immediate implications for our customer relationships. It is currently impossible to foresee what role the UK might take in the EU after such a transitional period. On the investment side we expect to see increased volatility on equity and credit markets right across Europe. We take the view, however, that we are suitably prepared with our rather defensively oriented investment posture.