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Solvency II will reduce competition, cause insurers to drop business: Survey

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A large percentage of senior financial services executives in the United Kingdom believe Solvency II will push insurers to exit some business lines and will reduce competition in the market, according to a study.

The survey by London-based Interim Partners Ltd., a search firm for interim executives, found that 90% of senior interim financial services executives believe Solvency II will cause insurers to exit business lines that no longer will be profitable under the upcoming regulatory regime.

These interim executives have been hired by financial services firms to help manage their Solvency II projects.

Solvency II, a risk-based capital regulatory regime for insurers and reinsurers in the European Union, is slated for introduction in 2013 with full adoption planned for 2014.

Interim Partners surveyed 170 interim executives, many of whom have worked on Solvency II implementation programs, it said.

Almost three quarters, 73%, of the executives surveyed said they expected a wave of consolidation as a result of Solvency II.

And 88% said they believed Solvency II ultimately would result in higher costs for insurance buyers.

“There is a concern in the insurance industry that some insurers, particularly smaller ones, will no longer be able to operate as profitably under Solvency II and will have to find a trade buyer,” said Andrew McIntee, director of financial services at Interim Partners, in a statement.

“More broadly, the high cost of regulatory compliance since the credit crunch, from preparing for Solvency II to more intrusive domestic regulation, means that insurers may look to (mergers and acquisitions) to generate efficiencies and cost savings,” he added.