The insurance sector is not yet prepared for the implementation of Solvency II despite there being little over a year to go until the regulatory regime is implemented, credit ratings agency Standard & Poors has said.
The firm highlighted that the European Insurance and Occupational Pensions Authority stress tests had demonstrated that work remained ahead of the reform.
An S&P analysis published today stated that implementation of Solvency II, which is expected to be in place on January 1 2016, was now in an 'intensive and critical period' in the face of 'continued regulatory uncertainty'.
Implementation was taking place at a time when long-term government bond yields had declined to near historical lows, deteriorating the business conditions for insurers. Such pressures were not likely to ease in the near future, as the European Central Bank has recently set out plans for an asset purchase programme that could see it buy government bonds.
'Solvency II implementation will be here in barely more than a year and, although we believe the impact on rated insurers will be more benign, the combination of low yields and regulatory change will increasingly challenge some business models,' the report stated.
'Moreover, as Solvency II uncertainties diminish, we believe conduct regulation will increasingly come to the fore as the key theme shaping insurance markets and competitive dynamics.'
These pressures will threaten some life insurance and reinsurance business models.
'Near-term negative rating actions will likely outweigh positive rating actions for Europe's life insurers and reinsurers,' the report concluded.
