Asset Managers at Risk of Missing Substantial Solvency II Revenues

June 26, 2012 /

A research released yesterday by Ernst & Young shows that European asset managers are not taking a strategic approach to Solvency II.

While over half of the 44 European asset managers surveyed have said they are being proactive in preparing for the regulations and two thirds have got a strategy in place, evidence from the survey suggests their approach remains largely reactive.

“Managers expect Solvency II to bring them new business but we have found little evidence that they are actually grasping the opportunities for strategic revenue generation. There’s a lot to play for, getting it right could create significant new revenue streams and getting it wrong will put manager’s insurance portfolios at risk”, said Hans-Jürgen Wolter, Partner at Ernst & Young’s asset management team.

“The industry has been largely reactive to date, often blaming the continued lack of clarity on the regulations, but this expectation of guaranteed future income from Solvency II will not play out unless managers start to look past the uncertainty and proactively position themselves to make some money.”

A quarter of respondents will complete their program before January 2013, and just 15 per cent think they will miss the deadline and complete post-January 2014. «With only 18 months to go, Solvency II is becoming a bit of a time bomb for asset managers.

In the basic sense of compliance, we are confident the majority of the industry will be ready in time, but many have not yet got their heads around what it will take to make their solvency II programmes work to their advantage», says Hans-Jürgen Wolter. 45 per cent of asset managers admit that they are purely reactive or have a limited proposition, a third have no clearly defined strategy and a fifth have no programme underway at all.

In contrast 5 per cent of managers have set proactive targets for fee generation from Solvency II. «The market is currently wide open for those asset managers who are taking a proactive approach to Solvency II to win market share from their competitors», says Hans-Jürgen Wolter.

Costs of Solvency II still uncertain

Hans-Jürgen Wolter says: “Solvency II preparation is becoming a significant overhead for managers, with internal staff being redeployed and external recruitment for solvency II related roles increasing. Due to the continuing uncertainty over the details of the legislation, firms haven’t yet really got a full picture of the client reporting and data management work they will need to undertake”.

One respondent said: “We are worried about spending too much on Solvency II if there is so much change and uncertainty from the regulators.”

Communication with insurers on Solvency II is patchy

While almost a third of respondents had been in contact with most of their insurance client base around Solvency II, a significant proportion of asset managers are not in dialogue with their insurance clients about Solvency II, even at this relatively late stage.

In fact, 53 per cent of managers have engaged with less than half of their insurance clients, and 25 per cent of respondents said more than 90 per cent of their insurance clients had yet to engage with them on Solvency II planning and requirements. 20 per cent of respondents said that ‘engagement with insurers’ is their biggest challenge.

Hans-Jürgen Wolter: “It seems that managers are either waiting for their insurance clients to approach them with a wish list or are ploughing on ahead with their own solvency II programmes without a full dialogue with their client base. Either way, dialogue with the insurance industry will be key to the end success of managers’ solvency II programmes and most managers would benefit from upping their engagement.”


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