Nordic insurers will have to make above-average adjustments to their investment portfolios because of the likely requirements of Solvency II, according to Fitch Ratings.
Equities currently account for 25-40% of Nordic insurers' portfolios, compared with a Europe-wide average of 8%, the ratings agency said yesterday.
Under Solvency II, the higher risk associated with equities means they will attract a higher capital charge than short-dated high-grade fixed income securities, and Fitch said it expected this to prompt a marked move from equities to bonds by Nordic insurers.
'We have already seen many European insurance companies reducing equity exposure, largely as a result of the financial crisis but also in anticipation of Solvency II,' it said.
'This could have a positive effect on corporate bond issuers - insurance companies represent a major source of demand in the Nordic regions.'
Fitch noted, however, that it did not expect any dramatic changes in asset allocations in the short-term.
'We think that Nordic insurers are adequately capitalised to meet the more stringent requirements, and we expect any changes in asset allocations or business practices to happen gradually - Solvency II is not expected to come into effect until 2014, with the changes then being phased in to smooth the transition.'